ORAL ANSWERS TO QUESTIONS

HOME DEPARTMENT

The Secretary of State was asked—

Unauthorised Disclosures

Henry Bellingham: When officials from her Department will next meet Cabinet Office officials to discuss measures to reduce the number of unauthorised disclosures of information from her Department.

Andrew Turner: On how many occasions there have been breaches of security involving the unauthorised disclosure of information from her Department since 2000.

Desmond Swayne: What steps she is taking to prevent the unauthorised disclosure of restricted and confidential information from her Department.

Jacqui Smith: The Home Office and the Cabinet Office take all breaches of security very seriously. Unauthorised disclosures are both a breach of security and a breach of the civil service code. Home Office and Cabinet Office officials hold regular meetings to discuss these matters. We follow all Government rules and procedures to prevent unauthorised disclosures of restricted and confidential information from Departments and we pursue unauthorised disclosures. I am advised that there have been 43 investigations into alleged unauthorised disclosures of information from the Home Office since 2000.

Henry Bellingham: I am grateful to the Home Secretary for that reply. Is she aware that there is a growing consensus that the police handling of the arrest of my hon. Friend the Member for Ashford (Damian Green) was disproportionate? Furthermore, it is now apparent that the search of his offices here did not comply with Police and Criminal Evidence Act guidelines. Is she aware that concerns about those two matters have been expressed by the acting commissioner, Sir Paul Stephenson, by her permanent secretary in his evidence to the Select Committee on Home Affairs and by the Leader of the House? Does the Home Secretary share those concerns?

Jacqui Smith: I am not clear that the assertion that the hon. Gentleman makes—that those concerns have been raised by the people whom he identifies—is correct, because in each case, those people have been scrupulous about not commenting on ongoing police investigations, as I will be.

Andrew Turner: Can the Home Secretary explain when a leak of information becomes a criminal investigation? When are the police involved?

Jacqui Smith: In this case, the police were involved because of the systematic nature of the leaking, the concern that numerous leak investigations had not succeeded in finding the perpetrator and, as was spelt out in the Cabinet Office letter to the Metropolitan police, particular concerns about the sensitivity of information that a potential leaker may have had access to.

Desmond Swayne: The 1988 White Paper said:
	"The objective of Official Secrets legislation is not to enforce Crown Service discipline—that is not a matter for the criminal law".
	When Lord Hurd presented the Bill to the House, he said:
	"We ask the House today to agree in principle that the criminal law should be prised away from the great bulk of official information."—[ Official Report, 21 December 1988; Vol. 144, c. 460.]
	Why has that changed under Labour?

Jacqui Smith: As I have just outlined to the hon. Member for Isle of Wight (Mr. Turner), the decision to refer the investigation to the police was made by my permanent secretary and the Cabinet Secretary. The reasons are spelt out in the letter from the Cabinet Office to the police, which is now available in the Libraries of both Houses. Whether criminal charges are laid is of course a matter for the police and the Crown Prosecution Service.

David Taylor: Does the Home Secretary not find this situation rather ironic? Here we are, on almost exactly the 23rd anniversary of the climax of the Westland affair, when the Tory Secretary of State for Trade and Industry was leaking furiously against the Secretary of State for Defence, Lord Heseltine, as he now is. Is she as unsurprised as I am that a party that had more leaks than a Rhondda vegetable show when it was in government should be actively soliciting leaks when it is in opposition, in the disgraceful way that we have seen over recent months?

Jacqui Smith: Well, as I have said before, one of the things that hon. Members in all parts of the House—and certainly any hon. Member whose ambition it is to form part of a Government at any time in the future—should be wary about is undermining the impartiality of the British civil service as laid down in the civil service code, for which Governments of all persuasions have had reason to be grateful and by which the people of this country set quite a lot of store.

Gordon Prentice: The former shadow Home Secretary, the right hon. Member for Haltemprice and Howden (David Davis), has said on the record that 50 per cent. of the material that he receives from moles cannot be put into the public domain because it is too sensitive in terms of national security. Does the Home Secretary agree that there is an obligation on the former shadow Home Secretary to return that material to the relevant Departments?

Jacqui Smith: My hon. Friend makes an important point. There has been a suggestion throughout the whole of this case that, somehow or other, pieces of information relating to national security never get leaked, but as my hon. Friend pointed out, the right hon. Member for Haltemprice and Howden, the former shadow Home Secretary, said:
	"In about half the cases we decide not"
	to release information
	"because we think there are reasons perhaps of national security or military or terrorism reasons not to put things in the public domain."
	In other words, the right hon. Gentleman has in his possession information that has come to him that has national security, the military or terrorism associated with it. I wonder whether he passed it on to his successor, the current shadow Home Secretary, and whether he, in turn, believes that the right thing to do might be to return it to the authorities from which it came.

Andrew MacKinlay: I want one thing cleared up. The Home Secretary has not yet explained to the House how—on 4 December, I think—there was a difference between what she reported to the House as the reasons for the arrest of the hon. Member for Ashford and what he had received in the documentation from the Metropolitan police. That lack of precision does not increase one's confidence in the veracity of the Metropolitan police. Will she explain to the House this afternoon why the Metropolitan police gave her duff information, and tell us what she has done about it?

Jacqui Smith: I took it up, as I said I would, immediately with the Metropolitan police. They confirmed that the terms of the arrest were accurate, and I communicated that to the hon. Member for Ashford.

David Davies: The Home Secretary has made it very clear that she was not informed of the arrests in relation to those leaks prior to the arrests taking place. Will she tell us whether she gave any instructions, written or verbal, to anyone in the Home Office or the Metropolitan police that she should not be informed if arrests were going to take place in respect of that matter?

Jacqui Smith: No, I did not—as I made clear when I made my statement the other day.

Julian Brazier: Has the Home Secretary read the report by the Standards and Privileges Committee of two Sessions ago on the working of the sub judice rule? Does she accept that, in cases such as this where there is an ongoing investigation, the Committee makes it clear that Parliament has always treated that rule with discretion? It has always been a matter for the Speaker in the Chamber, and for individual Committee Chairmen in Committees, to decide how to operate it.

Jacqui Smith: I have not read the specific report to which the hon. Gentleman refers, but I am sure that he will share my view that, whether inside or outside the House, the operational independence of the police force is important. It is also important, as he says, that we all exercise considerable discretion over ensuring that we do not prejudice police investigations.

Rob Marris: I think the way in which the hon. Member for Ashford was treated by the police was disgraceful and if it turns out that my right hon. Friend had in fact been informed of the police action before it took place—something that she has denied—she would have to resign. Correspondingly, the hon. and learned Member for Beaconsfield (Mr. Grieve) has said to my right hon. Friend, in terms, that she lied when saying that she had not been informed in advance. Does she agree that, if it is proved that she had not been told in advance, the hon. and learned Gentleman should resign?

Jacqui Smith: I have asked the hon. and learned Member for Beaconsfield (Mr. Grieve) and others to withdraw the allegations and assertions that they have made against me. It is up to them whether they choose to do the right thing.

Christopher Huhne: There is a good deal of concern about the use of the offence of misconduct in public office in the case of Christopher Galley and the hon. Member for Ashford, particularly given the policy decision to ensure that, from 1989, the only cases in which criminal investigations are appropriate are those that involve national security. How many police investigations of Government complaints referring to misconduct in public office have there been in the past year—or two years or whatever is appropriate—and how many prosecutions and convictions have there been? Is this offence being used to intimidate civil servants, rather than to bring them to justice?

Jacqui Smith: There have been several investigations, and several charges laid on the basis of misconduct in public life. I will write to the hon. Gentleman with the specific numbers. The offence has been looked at relatively recently in a case in front of the High Court.

Dominic Grieve: Is not one of the reasons why there are so many unauthorised disclosures from the Home Office the fact that the Department sets an example by engaging in authorised leaking when it suits the Home Secretary's political purpose? In that context, did she authorise the leak last week of the partial and selective knife crime statistics, in breach of the Government's own rules and against the protests of the UK statistics authority? Or was that all down to the Cabinet Office and Downing street?

Jacqui Smith: There are plenty of arguments about the definition of a leak, but I hardly think that issuing a press release counts as a leak.
	I am sorry that we were, I think, too quick off the mark with the publication of one number in relation to the progress that had been made in tackling knife crime, but I commend the police and their crime-fighting partners on the impact that they are already making through the tackling knives action programme, as spelt out by the other statistics produced last week.

Dominic Grieve: I note that the Home Secretary has not answered the question. Nor has she apologised to the House for this gross and deliberate breach of its own rules. Sir Michael Scholar said that the decision to release the spun propaganda was "corrosive of public trust". If the Home Secretary was involved, why should she be trusted in future on the basis of what she says? Can she please explain? If she was not involved, does that not show yet again that she is not in charge of her Department and that, in fact, she is incapable of discharging her responsibilities properly?

Jacqui Smith: Sir Michael Scholar did not use the words "spun propaganda". He pointed out that one figure used last week had been issued prematurely. If the hon. and learned Gentleman had been listening, he would have heard me say the words "I am sorry": sorry that we had pre-empted the publication of that specific number. However, I hope that he will join me in recognising the considerable progress that has been made—I think that this is the most important issue—in helping to ensure that 17 per cent. fewer young people are subject to serious knife offences, that of the 10,000 extra searches being conducted each month fewer are now finding young people carrying knives, that 179 more offenders are now in prison for weapons offences, and that on average those offenders are receiving almost 40 per cent. longer sentences. That constitutes progress in keeping young people safe on our streets, which I think is the top priority for most of the British public.

Zimbabwean Asylum Seekers

Greg Mulholland: What the Government's policy is on holding Zimbabwean asylum seekers in immigration detention.

Phil Woolas: The UK Border Agency only detains Zimbabwean nationals who have committed crimes within the United Kingdom, who are subject to deportation action, and who have been assessed as unsuitable for release owing to their being a threat to the public and/or likely to abscond. Anyone detained under immigration powers has his or her detention regularly reviewed, and can apply for release on bail to the independent Asylum and Immigration Tribunal.

Greg Mulholland: As I am sure all Members know, according to reports from Zimbabwe, the situation is worse than ever, with oppression, political violence, beatings as an everyday occurrence, corruption and, now, the added plight of those affected by the cholera epidemic. In the light of the tribunal's decision two weeks ago—or, rather, the Government's response that they would not challenge it—will the Minister tell me what will happen to the other 7,500 cases? Have those people some hope now, and will he examine their situation again?

Phil Woolas: I am grateful to the hon. Gentleman for his question. I think that the whole House will share his sentiments about the situation in Zimbabwe. He referred to the country court judgment. It states that each case can be considered individually, and indeed that must be done. As I am sure the hon. Gentleman will agree, not all those presenting themselves as Zimbabwean turn out to be Zimbabwean on examination. That is why we must examine each case properly, within the rules.

Neil Gerrard: In the light of the recent judgment on an Eritrean asylum seeker, will my hon. Friend consider the position of Zimbabweans and others who cannot be returned at this moment but who are not allowed to work?

Phil Woolas: I hear what my hon. Friend says. When someone cannot be returned through no fault of his or her own, having exhausted all appeal rights, it is our policy for that person to receive section 4 support from the United Kingdom Government. The overall number of people with whom we are having to deal has fallen, but that support is there.

David Tredinnick: What additional steps has the Minister taken in case the situation in Zimbabwe deteriorates dramatically and he is faced with a massive number of people trying to get into this country? What are the Government doing about that?

Phil Woolas: The hon. Gentleman has made an important point. There are also British nationals in Zimbabwe, and there is the ever-present danger of more people trying to get into our country illegally. That is why, as I am sure the hon. Gentleman appreciates, we review all the procedures not just in that part of the world, but in other countries and other circumstances.

Fiona Mactaggart: The Minister said in response to the question from my hon. Friend the Member for Walthamstow (Mr. Gerrard) that Zimbabweans who are here and who it is intended will return but cannot currently be returned are eligible for section 4 support. However, the case to which the Minister referred suggested that, in respect of Eritrea, where people cannot be returned and have no source of support, they should be allowed to earn their own support. When will the Minister allow trapped Zimbabweans to work to earn the money to get themselves and their families a decent Christmas?

Phil Woolas: I am grateful to my hon. Friend for her points on this important matter. The case to which she refers concerned a gentleman from Eritrea, and the judgment in that case was very specific, looking at the amount of time that had been spent in this country. Having said that, it is not the Government's policy to provide for blanket exceptions for the good reason that we must look at each case on its merits.

Simon Hughes: The Minister knows that there is a widespread view held by Members in all parts of the House—it is not a party view—that it is nonsense to require people who cannot go back, and who are qualified and could be further qualified, not to work while they are here when that will not lead to any permanent right to be here, but will give them a chance to improve their skills. Will the Minister be straightforward with the House and confirm that the Government are reviewing this matter, and will he tell us when the review will be concluded and whether he will make the intelligent, sympathetic and widely welcome decision to change the policy?

Phil Woolas: Again, I am grateful to the hon. Gentleman for making his points on this important topic. I am not sure whether he was talking specifically about Zimbabwe or in general, but on the general point we think it is right to look at each case on its merits. Those who argue for a general blanket amnesty—I accept that the hon. Gentleman is not asking for that—have to accept that it can be self-defeating as we have seen in other European Union countries, and that it can, in fact, bring about more misery and hardship and, of course, more profit for the people traffickers.

Damian Green: I sympathise with the Minister on the difficulties facing him, but he must concentrate on the issue of the Zimbabweans who are already in this country. The facts are that there are already more than 10,000 people here, that they cannot be returned forcibly to Zimbabwe and that the Government are preventing them from working legally while they are in this limbo. Does the Minister really think this is either economically sensible or morally acceptable, or is he prepared to use destitution as an arm of his asylum policy?

Phil Woolas: Let me reassure the House that the Government do not use, and have no intention whatever of using, destitution as policy. Indeed, the Government have on occasion been criticised by Members on both sides of the House for providing support, particularly for those people who, as I said a moment ago, through no fault of their own cannot return to their own country but where it has been deemed that they should do so. However, I repeat the point I made to the hon. Member for North Southwark and Bermondsey (Simon Hughes) that one has to strike a balance between providing proper support within the law and not having a policy that would make the situation worse. That point should be considered by the hon. Member for Ashford (Damian Green) and his colleagues.

Police Bureaucracy

Adrian Bailey: What steps she is taking to reduce unnecessary police bureaucracy; and if she will make a statement.

Vernon Coaker: It is vital that the police are able to deliver for the public in the most efficient way. That is why we are scrapping the time-consuming stop and account form, reducing by up to 80 per cent. the amount of time taken to record crimes, and investing £75 million in new technology to help officers work smarter, thereby freeing up officers to focus on addressing people's concerns.

Adrian Bailey: I thank the Minister for his reply. More specifically, can he tell me what assessment he has made of the impact of the use of hand-held high technology devices issued to front-line police officers on reducing police bureaucracy?

Vernon Coaker: We think that the fact that we have made increasing numbers of these hand-held devices available to front-line officers has made a significant difference. I was recently in Staffordshire talking to police officers there, and they were demonstrating the use of these devices and talking about the difference that they were making. I should point out that 10,000 extra hand-held devices have been made available to front-line officers, and that figure will rise to 30,000 by 2010.

Douglas Carswell: What specific reforms, if any, is the Minister contemplating to make local police more locally accountable, and how would such reforms allow local people, rather than Home Office officials, to set local police priorities?

Vernon Coaker: If the hon. Gentleman looks at our proposals regarding the crime and disorder reduction partnerships, he will see that my right hon. Friend the Home Secretary only recently announced the councillor call for action, which will be implemented from April this year to allow local councillors to have more say in what happens with local police forces. Moreover, the policing pledge talks about the public having more chance to influence the police through face-to-face meetings; neighbourhood policing teams are out there meeting people; police community support officers get out there and deliver leaflets; and e-cops, which we see in Leicestershire, allow people to e-mail their concerns. All those things allow people to influence local policing in their area, and are very much welcomed by everybody I meet.

David Kidney: I thank my hon. Friend for his visit to Stafford a fortnight ago, when he met the chief constable, Chris Sims, and representatives of the senior leadership and the police authority. Crucially, he also met police officers and PCSOs. Does he agree, as a result of that day in Stafford, that Staffordshire police really are now leading the country on cutting out unnecessary paperwork, streamlining criminal justice systems and keeping police officers out on the front line for longer? Is that not why Jan Berry held the first meeting of her group that day in Stafford, to provide recommendations to police throughout the country?

Vernon Coaker: Cutting bureaucracy is an essential part of the work that we are doing, and talking to front-line police officers—as both my hon. Friend and I did that day in Stafford—shows the impact that that is having. It is not me who is saying that it is having an impact, but police officers themselves. Staffordshire is one of the four crime-recording pilots, and Staffordshire police have looked at a whole range of measures—not only the use of hand-held computers, but forms relating to a variety of crimes, including stop and account. Not only Staffordshire but other police forces that have played a part in these pilots are demonstrating to forces across the country the serious inroads that can be made into unnecessary bureaucracy.

Mark Pritchard: I agree with the Minister that communication with our constituents needs to improve, but I doubt whether it will come as a surprise to him to learn that most of my constituents do not see crime as virtual or in e-mails, but in reality. What they want to see is more police officers on the street and less bureaucracy, so it is very concerning that the Minister is talking about e-cops; what people want to see is real cops.

Vernon Coaker: And they do see real cops. I bet that the neighbourhood policing teams in the hon. Gentleman's constituency demonstrate such visible policing and the presence on the streets that everybody wants to see. By reducing bureaucracy and through the changes that we are making to stop and account forms, through the work that Jan Berry is doing and through crime recording pilots—which have shown that it is possible to reduce bureaucracy in respect of a whole range of crimes—not only will communication between constituents and the police improve, but we will see the increased numbers of police that everybody wants to see on the street.

David Ruffley: Four years ago, the Home Office told us that police officers spent only 19 per cent. of their time on patrol. Can the Minister tell us what the latest figure is?

Vernon Coaker: Of course, the hon. Gentleman is using one particular measure—an on-patrol measure, which, as he knows, takes no account of any interaction between police officers and members of the public; all that it counts is when somebody is actually out there on the street. It does not account for a police officer who stops and speaks to someone in a car or who speaks to someone whose shop has been robbed. Any of the normal things that we would expect a police officer to do are not counted, which is why we introduced a new measure called the front-line policing measure.

Alcohol-related Crime

Nia Griffith: What steps she is taking to tackle alcohol-related crime and disorder.

Jacqui Smith: The majority of people who drink enjoy alcohol sensibly, but we are determined to take action to reduce the health and social harms caused by those who do not. We have recently announced actions to combat the problem, including a new mandatory code of practice to target the most irresponsible retail practices, a £3 million cash injection for crime and disorder reduction partnerships for enforcement activities in 198 areas and a further £1.5 million for our priority areas to tackle underage sales, confiscate alcohol from under-18s and run campaigns to tell people what action is being taken locally to reduce alcohol-related crime and disorder.

Nia Griffith: I am sure we all want to find more ways of reducing alcohol-related crime in our town centres, such as the "Behave or Be Banned" campaign that is running in my area. In the light of my talks with the mayor of Llanelli about creating an alcohol-free zone in the centre of the town, may I ask the Home Secretary what success such zones have had elsewhere and what other measures she would recommend to reduce alcohol-related disorder?

Jacqui Smith: First, I commend my hon. Friend for working with her local colleagues to make use of the tools that the Government have put in place—I believe she was referring to a designated public place order in this case. We take very seriously the responsibility to make clear to local partners, such as the ones to whom she refers, the tools that are available. That is why we have been running a series of regional workshops—two have taken place and one more is due to take place—which have been extremely well received. Alongside the sort of local activity that she is talking about, the use of Government-provided tools and the new initiatives that we have recently announced will help to ensure that those people who want to drink sensibly can do so, but those who cause harm to themselves or others will be prevented from doing so.

Robert Goodwill: Does the Home Secretary agree that 24-hour drinking has been a mistake and that she should reverse the policy?

Jacqui Smith: No, and nor do independent assessments, including the report on the impact of the Licensing Act 2003, which was published in 2008. It showed that the overall volume of incidents of crime and disorder remained unchanged, and that there were signs that crimes involving serious violence may have reduced and that local residents were less likely to say that drunk and rowdy behaviour was a problem. I do believe it is important that the elements of the 2003 Act that provide more opportunities for local partners and police to limit the unacceptable activities of licensed premises should be used more, and that is precisely what we are trying to enable people to do at the moment.

Keith Vaz: I wonder whether the Home Secretary has time in her busy week to come with me to visit Tesco, where she would be able to see the unacceptable practices still being conducted by the supermarkets. They are selling alcohol very cheaply—three for the price of one—and putting all kinds of promotions before people to enable them to buy more and more alcohol cheaply. That is what contributes to our disorder. Will she not accept that the Government must have a floor price on the alcohol sold at supermarkets in order to tackle this very serious problem of alcohol-related crime, especially at this time of the year?

Jacqui Smith: During my busy weekend, I was able to take a trip to a supermarket. As I think I said the last time he questioned me about this, my right hon. Friend's Committee made some important recommendations, and those have certainly fed into the proposals we are making to help counter alcohol-related disorder. We carried out a considerable research study with the university of Sheffield on the impact of minimum pricing, and, as my right hon. Friend the Secretary of State for Health has made clear, given the current economic climate in particular, we do not intend at this moment to introduce the sort of minimum price to which my right hon. Friend the Member for Leicester, East (Keith Vaz) was referring. However, we certainly have not closed off that option for the future, and the Health Secretary is already undertaking more work into the impact and consequences of that particular form of action.

Gary Streeter: I disagree with the Chairman of the Select Committee on which I serve, but I accept that there is a point to address about people "tanking up" on cheap supermarket booze at home before unleashing themselves on the streets. I agree that it would be wrong for a Government to set a minimum price for alcohol, but will she encourage the supermarkets, which talk an awful lot in our constituencies about their social responsibility to the community, to think of this issue as part of that responsibility? Perhaps, given our particular problems, they should be encouraged, voluntarily, to be a little more responsible.

Jacqui Smith: Perhaps I should make it clear to the hon. Gentleman that my visit to the supermarket over the weekend was not made to "tank up" before I hit the streets. However, I agree with his point about the social responsibility of supermarkets—responsibility that I know they also take seriously and which I am sure they would want to manifest publicly.

Madeleine Moon: This weekend, a further five street pastors were commissioned in Bridgend. That brings the total to 46 individuals from 17 churches giving their time to support the police in tackling antisocial behaviour and inappropriate drinking, and helping people who are distressed out on the streets of Bridgend when, on a Friday or Saturday night, they have gone out for a social occasion. Is that not another way in which we can reclaim the streets for ordinary law-abiding people so that people can enjoy a night out without having to be intimidated and threatened?
	May I also advise my right hon. Friend that the street pastors are now not only covering that 10 until 4 in the morning slot, but going on to one of my estates and working from 6 until 8 with youngsters, which will also improve life on that estate?

Jacqui Smith: I thank my hon. Friend for inviting me to Bridgend to see the excellent work being done by the street pastors alongside the local police force and the local authority. I was impressed by that partnership. As she says, it was already showing considerable results on the streets and I am pleased to hear that it has been expanded.

James Brokenshire: Despite the Home Secretary's promise of more legislation, the Home Office still has not got round to implementing existing alcohol legislation on the introduction of drinking banning orders. Will she confirm whether the Home Office was unable to reach agreement with the Ministry of Justice on the cost of implementing the orders, estimated at £32.5 million under the MOJ's controls on downstream costs on the courts and legal aid budgets, and whether the Home Office's legislative hyperactivity is finally catching up with it and it is becoming an unlikely new victim of the economic downturn?

Jacqui Smith: No, because as I announced recently we will be introducing drinking banning orders by application next year.

Migration Advisory Committee

Anne Moffat: What assessment she has made of the recent work of the Migration Advisory Committee on shortage occupation lists.

Phil Woolas: We are grateful for the work of the Migration Advisory Committee. The committee provides expert independent advice on where the country needs economic migration and where it does not. The Government have decided to implement the committee's recommendations in full, and in addition to retain social workers on the UK shortage list while the MAC considers evidence of relevance to their inclusion.

Anne Moffat: I thank my hon. Friend for that answer. How does the work of the committee assist British businesses and workers, including in Scotland?

Phil Woolas: The idea, of course, is that, through the committee's expert advice, we can identify where there are skill shortages in order to place those shortages on the migration list under the points-based system, but also, crucially, to provide for training and skilling for British workers—for my hon. Friend's constituents—to get jobs. As part of that approach, we also have specific measures for Scotland to identify those sectors of the economy where there are particular short-term problems.

Pete Wishart: The Minister will appreciate that Scotland has different population and immigration requirements from the rest of the UK, yet the MAC list has as additional groups only care home nurses and fish filleters. In his assessment, what difference will that make to Scottish population problems? Do we not need significantly more help than that?

Phil Woolas: The hon. Gentleman is being slightly unfair, as he has missed out quality controllers in the fish processing industry, which in Scotland is extremely important. As I said, the UK list covers Scotland so that within those sectors that apply to Scotland and to the rest of the UK we can provide for training and skilling in skill shortage areas, for the benefit of his constituents. It is a fair and tough policy, but flexible for local economic needs.

Frank Field: Given that more than 70,000 skilled workers have come into the country in the past three years under the skilled workers scheme and that the Home Office does not know where any one of them has found a job or whether they have found skilled jobs, and given that unemployment is now rising, what steps are the Government taking to control the scheme?

Phil Woolas: I am grateful to my right hon. Friend for that question. It is precisely because of the concerns that have been raised that we have introduced the points-based system and the criteria that we can apply to skills within the different tiers of the system. As a result of that system, we can provide reassurance to our constituents that their concerns are being put foremost and we can match the skills shortages with the skills training programmes for British workers while applying the criteria of the tiers within the points-based system to control migration.

Nicholas Soames: What further thought has the hon. Gentleman given to the proposals put to him by the right hon. Member for Birkenhead (Mr. Field) and me arising from the balanced migration campaign and the need to break the link between people's coming here to work and their apparently now automatic right to settle?

Phil Woolas: I am grateful to be in the middle of a pincer movement, which is a very effective one, if I may say so. The hon. Gentleman is right. It is important to break the link between people's coming here to work for a specific purpose under the skills shortage scheme or the high skills scheme, or under other smaller schemes, and their automatic right to settlement. It is very important that we break that link and that is what we are doing.

Asylum Seekers

Andrew Pelling: How many asylum seekers supported under section 98 of the Immigration and Asylum Act 1999 were in emergency hotel accommodation in (a) the London borough of Croydon and (b) England and Wales in the last period for which figures are available.

Phil Woolas: As at week ending Friday 5 December 2008, there were 156 asylum seekers supported under section 98 of the Immigration and Asylum Act 1999 in the London borough of Croydon and just over 1,000 supported under the same section in England and Wales. Section 98 accommodation is predominantly provided in blocked accommodation, such as former hotels and hostels.

Andrew Pelling: The Home Department should be congratulated on providing such accurate information. In the constituency that neighbours mine—the constituency of the right hon. Member for Croydon, North (Malcolm Wicks)—there was an unfortunate incident where an asylum seeker sought to be fed but ended up being involved in a contretemps where he was hit with a chain. What is done by the Government to ensure that reasonable service is provided to section 98 asylum seekers and what is done to oversee the quality of the contracts that are delivered?

Phil Woolas: I am grateful to the hon. Gentleman for raising that issue. On sight of his question, I asked for information and I shall write to him with the details of that investigation. I am satisfied that our officials and officers acted properly. It would appear that there was provocation and I shall give the hon. Gentleman details in my letter.

Jeremy Corbyn: Would the Minister not agree that it might be better to house people in emergency or local accommodation where they are allowed to remain for some time? We all come across cases where asylum seekers are frequently moved, which means that schools for children, access to GP services and other essential services that are required are often simply not available or that the lives of those asylum seekers are subject to incredible disruption. Would it not be better if they were given a more stable living?

Phil Woolas: The best thing to do is to deal with the asylum applications quickly, effectively and fairly. The improvements that we are making in that regard have been quite rightly applauded. On my hon. Friend's specific point, the section 98 people to whom the hon. Member for Croydon, Central (Mr. Pelling) referred are, of course, immediate applicants. The dispersal policy strives to meet the objectives outlined by my hon. Friend the Member for Islington, North (Jeremy Corbyn) and it is important that we have as many local authorities in partnership as possible in order to achieve that fairly.

Police (Beat)

Adam Holloway: What recent estimate she has made of the proportion of time police officers spend on the beat.

Vernon Coaker: The Government are committed to delivering a visible and reassuring police presence. At the end of March 2008, 64.9 per cent. of police officer time was spent on front-line duties, the fourth successive annual improvement since 2003-04. Since April 2008, there has been a neighbourhood policing team in every area. The policing pledge includes a commitment for neighbourhood policing teams to spend at least 80 per cent. of their time visibly working on their patch.

Adam Holloway: What does the Minister think the Government's Green Paper means when it says that the target culture in the police has created a perverse incentive that is distorting police action?

Vernon Coaker: It means that it is time for us to look at how we measure what the police do and the progress that has been made, particularly in terms of reducing crime across the country, including in the hon. Gentleman's constituency. He will know that as a consequence of review we have a single, top-down target that will simply relate to the confidence of local people in their police. I think that is the target the police want and the target the general public will want as well.

Lindsay Hoyle: My hon. Friend is aware that the general public—everybody out there—want high-visibility policing. What more can he do to ensure that there are more police on the beat and that there is less form-filling and less time taken locking people up in long-distance lock-up centres instead of using local cells more efficiently to ensure that the police are back on the streets to lock up more problems. Will he do something about it?

Vernon Coaker: My hon. Friend has been a long-time advocate of ensuring that there is a greater visible police presence on the streets. In his area—as in every area across the country—there are now neighbourhood policing teams, with dedicated police officers and police community support officers, out there on the street. He will have heard earlier about the measures we are taking to ensure that we reduce bureaucracy and the amount of form-filling that police officers have to do so that they can spend more time out on the street. The work I saw in Staffordshire, which has also been going on in Surrey, the west midlands and Leicestershire, shows that we can reduce the amount of form-filling. That empowers front-line officers and means that they can spend more time out on the street, where I know my hon. Friend wants them—as indeed we all do.

Topical Questions

Andrew Pelling: If she will make a statement on her departmental responsibilities.

Jacqui Smith: Domestic homicide of women is at the lowest rate for 10 years. Conviction rates for domestic violence cases have risen from 46 per cent. in 2003 to 72.5 per cent. in 2008. Between 1997 and 2007-08, there was a 58 per cent. fall in domestic violence incidents. Despite all that, we know we must do more, particularly at the Christmas period when women are at increased risk. For many, Christmas is a family time but for some it is a time of fear, violence and isolation. A new advertising campaign supported by the Home Office, Women's Aid and Refuge begins today to encourage domestic violence victims to seek support and not to suffer in silence. It supports a Home Office-funded enforcement campaign over Christmas in 10 police force areas; it includes innovative tactics such as the use of body-worn video cameras by police, dedicated domestic abuse response vehicles and increased front-line policing, targeting the highest risk domestic violence victims and offenders.

Andrew Pelling: I was very impressed that a member of the Home Office ministerial team spent a long time listening—not speaking—on the issue of knife killings in Croydon, although mentioning them is unfortunately not a proud boast for any Member of Parliament. Does anyone in the ministerial team feel that there is any good practice that could be copied in terms of providing additional resources for policing in Croydon, bearing in mind that since the Minister visited there have been two more street killings? I know that it is a devolved matter, but by following good practice elsewhere could the formula for funding for extra police officers be changed after such a significant increase in the number of street killings in a particular place?

Vernon Coaker: I was delighted to visit the hon. Gentleman's constituency and to see him talking to young people in particular about the work they are doing to tackle knife crime in their area. The work done in Croydon shows that the police cannot solve the problem on their own through enforcement. Of course, police enforcement is essential, as we have seen in the success of stop and search and the increased number of people going to prison for possession, but alongside that, we need the involvement of local authorities, local residents and young people. From my visit to the hon. Gentleman's constituency, I learned the value that young people can bring to that process. We need to remember that the vast majority of young people are decent—they are not involved in knife crime; but in terms of the solution, if we listen to what they say, they have part of the answer. As much as anything else, that is what I learned from my visit and I know that the hon. Gentleman was impressed as well.

Neil Gerrard: Given the return last week of a charter flight that was taking failed asylum seekers to Iraq—it seems to have been refused permission to land; certainly it did not land—can the Minister tell us which countries are receiving charter flights of people who have been forcibly removed from the UK, and whether there have been other instances of planes being refused permission to land?

Phil Woolas: I think that the report to which my hon. Friend refers concerned the joint UK-French flight. The UK is able to return people to both Iraq and Afghanistan in that way, and we continue to work with our partners in the French and Belgium authorities towards that end.

Bob Spink: Will the Home Secretary commend Essex chief constable Roger Baker's policy of ensuring that a police officer attends whenever there has been a crime, and does she think that the policy could be spread to other constabularies as good practice?

Jacqui Smith: I was very pleased to visit Essex constabulary at the beginning of December, and to praise chief constable Roger Baker and the Essex police force for being the first to commit publicly to the police pledge. At the heart of the police pledge is how we can ensure that local people have the information, support and ability to have an input into the policing that they want. Chief constable Roger Baker is doing an extremely good job in Essex.

Roberta Blackman-Woods: Has my right hon. Friend considered the damage that could be done to public confidence in policing if direct elections to the police authorities meant a rise in the sort of irresponsible behaviour displayed by the Liberal Democrat parliamentary candidate in Durham? They have sent out leaflets saying that crime has increased massively in the area, but that is not the case. Is my right hon. Friend looking at a range of measures to improve—

Mr. Speaker: Order. That is not a matter for the Home Secretary to consider.

Julian Lewis: The Home Secretary will remember the House's overwhelming support for the idea that hon. Members' home addresses should not be revealed in response to freedom of information requests. A consultation, organised by her colleagues in the Ministry of Justice, is under way on whether such addresses should be replaced by just the first half of the postcode, which, at election times, could be included on nomination and other relevant paperwork. Does she agree, from the point of view of her work on fighting terrorism, that that would be a good, sensible compromise that would add to the safety of hon. Members?

Jacqui Smith: Clearly, I do not want to pre-empt the consultation, but the hon. Gentleman makes a very important point that I know is being borne carefully in mind by my colleagues in the Ministry of Justice. He has made it forcefully on numerous occasions, and I think that he has significant support from across the House on the issue.

David Taylor: When people expressed concerns about the vigour shown, and resources devoted, by the police in relation to the Kingsnorth climate camp, we were told that it was justified because dozens of injuries were incurred. We have now found that those injuries were of a more prosaic origin—they were due to things such as insect stings and sunstroke. Unless the protesters are to be held responsible for wasps and the weather, are we not to conclude that the justification used at the time was wholly bogus and vacuous?

Vernon Coaker: I have written to the hon. Member for Cambridge (David Howarth) on the issue. I was informed that 70 police officers had been hurt, and naturally assumed that they had been hurt through direct contact, as a result of the protest. That clearly is not the case, and I apologise if that caused anybody to be misled. I can say to my hon. Friend the Member for North-West Leicestershire (David Taylor) and other Members that the National Policing Improvement Agency is currently considering the lessons to be learned from the Kingsnorth climate camp protest. I will meet the public order lead of the Association of Chief Police Officers to discuss the report, so that we can share the lessons to be learned from Kingsnorth with police forces across the country.

Adam Holloway: In an earlier answer, the Minister for Security, Counter-Terrorism, Crime and Policing said that local people's confidence in the police was a key indicator, so can he tell me why people are increasingly not bothering to report crimes to the police?

Jacqui Smith: The hon. Gentleman makes an important point. As we have frequently said, local people are one of the best weapons in helping to fight crime. It is precisely to give local people the confidence to report crimes to the police that, working alongside ACPO, we are pleased that the policing pledge, which provides monthly local information, monthly opportunities to feed in concerns, and much better communication between neighbourhood policing teams and local people, will be in place across the country by the end of the year. That will help to ensure that local people know that they can and should play their part in tackling local crime and antisocial behaviour.

Natascha Engel: We have heard today how much social disorder in town centres is caused by excessive alcohol and irresponsible selling by clubs and bars, which are still doing offers such as "women get in free", and "drink as much as you can for seven quid". What is my right hon. Friend doing to make sure that licensing laws are enforced effectively?

Jacqui Smith: I share my hon. Friend's concerns about the sort of irresponsible promotions that she outlined, which is why, having commissioned KPMG to look at how the industry was fulfilling its responsibilities under a voluntary code, it became clear that in some cases those responsibilities were not being fulfilled, so we are now proposing to introduce in the policing and crime Bill the ability to provide a mandatory code, which would outlaw precisely the type of irresponsible promotion that she outlined.

Tim Loughton: The last time that I raised an issue in topical questions with the Home Office, it was on the subject of a heavily fortified cannabis café that operates in my constituency. Alas, it is still a topical question, because 20 months on, a heavily fortified cannabis café is still a cause of blight for the local community, despite the best efforts of the police. Without going into details, because charges are pending, the café is still operating, so can the Minister give me some assurance that the law can be looked at to make sure that that nuisance can be properly addressed and the police given proper powers, because of the enormous inconvenience and concern in the local community?

Vernon Coaker: The hon. Gentleman has raised this issue with me on a number of occasions, and what is happening in his constituency is absolutely deplorable, as is the inability of the law—not the police—to tackle that problem and deal with it. If it would be helpful to have a further meeting to discuss with officials what further action we might take to try to bring an end to that totally unsatisfactory situation with the cannabis café in his constituency, I am perfectly happy to have one. Where the law needs to be changed, that should be looked at, and it should be changed.

David Howarth: Returning to the issue of Kingsnorth policing, I thank the Minister both for what he has just said and for the letter that he wrote to me. However, in the light of the new information available to the House, would he care to revise his conclusion that the policing of Kingsnorth was proportionate and appropriate, especially as we also know that large numbers of protesters were injured at the hands of the police, especially by batons?

Vernon Coaker: I have apologised to the hon. Gentleman for that, and as he quite rightly said, I have written to him. I think it would be best for me to wait for the NPIA report on what happened at Kingsnorth, and to review it with the ACPO representative responsible for public order to see what lessons can be learned. I would then be happy to share those conclusions with the hon. Gentleman.

Anne McIntosh: How does the Home Secretary respond to the charge that when she has good news from her Department she rushes out, for example, selective knife crime statistics, but when there is bad news, such as a cut to police funding for North Yorkshire, it is sent out in the most ponderous, opaque and obscure language that no one can understand?

Jacqui Smith: There has been no cut in funding for North Yorkshire police, so I hope that the hon. Lady will make that clear as well. All police authorities are getting an increase of at least 2.5 per cent., alongside the other grants that they receive.

Gordon Prentice: Does my friend intend to implement the recent ruling of the European Court of Human Rights that it is quite wrong for DNA to be taken, and held, from people who have not been convicted of any crime?

Alan Campbell: DNA and fingerprints play an invaluable role in fighting crime. We are carefully considering how best to give effect to the recent judgment of the European Court of Human Rights, but I remind the House that in 2007-08 there were more than 37,000 crimes with a DNA match, 363 homicides and 540 rapes. We will not rush to judgment, and we will not be rushed, either.

Robert Goodwill: We are all aware that an obesity epidemic is spreading across our country. Not only do police officers appear younger, but many of them appear larger as well. What assessment has the Home Office made of the effect of declining levels of physical fitness on the operational effectiveness of our thin blue line?

Jacqui Smith: I have seen no evidence that our police officers are not able to carry out their responsibilities fully, actively and with great fitness. I am sure the hon. Gentleman did not mean to imply that, and I do not believe that it is the case.

EU Council/Afghanistan, India and Pakistan

Gordon Brown: I am sure the whole House will join me in sending our profound condolences to the family and friends of Corporal Lee Churcher, of the Royal Engineers, who died while serving in Iraq, and Corporal Marc Birch, Marine Damian Davies, Lance-Corporal Jamie Fellows and Sergeant John Manuel of the Royal Marines, who lost their lives in Afghanistan. This is a tragic loss. We owe them and all those who have lost their lives in the service of our country our gratitude for their service and sacrifice. As a House and as a nation, we will never forget them. As I saw in Afghanistan on Saturday, our troops are serving with great skill, great courage and enormous dedication. It can truly be said that Britain's armed forces are the best in the world, and we are immensely proud of all who serve in them.
	With permission, Mr. Speaker, I would like to make a statement on the European Council held last Thursday and Friday, and on my visits to Afghanistan, India and Pakistan this weekend. The European summit focused on two global challenges—economic recovery and climate change. I can report, first of all, that the Council agreed measures worth around 1.5 per cent. of European GDP—that is, around €200 billion—which will provide a fiscal stimulus for the European economy. This 1.5 per cent. fiscal boost is in addition to the work of the automatic stabilisers. The measures agreed included support for
	"increased public spending, judicious reductions in tax burdens and direct aid to households, especially those which are most vulnerable"—
	exactly the measures that Britain has already taken, just as France has announced a package of measures worth €26 billion, Spain measures worth €11 billion, and Germany a fiscal package worth €32 billion.
	Just as Europe came together in October and November to lead the recapitalisation of the banks, so too Europe has agreed unanimously co-ordinated action which will support employment and growth. The Council agreed that its action was in a
	"united, strong, rapid and decisive manner",
	and while committing to medium-term sustainable public finances, it agreed to
	"mobilise all the instruments available to it."
	By acting in a co-ordinated and concerted way, the impact on jobs in each country is much greater than if we acted on our own, and the action across Europe will be of help to Britain, where nearly 60 per cent. of our trade is with the rest of Europe. The co-ordinated European action includes a speeding up of public procurement, a continued and general
	"reduction in administrative burdens on business",
	and an additional €30 billion from the European Investment Bank to be invested in Britain and throughout Europe in the coming year.
	So the debate about the use of fiscal policy to stimulate our economy and to give direct support for families and businesses in Europe is resolved. Europe favours substantial fiscal stimulus alongside cuts in interest rates. I am confident that the new American Administration of President-elect Obama will also introduce a large fiscal stimulus. This European set of announcements is the answer to those who said that nothing could be done and that the recession must take its course, and who believe that fiscal policy has no role to play. Indeed, even at this time of difficulty, they believe that public spending should be cut.
	To back up the loan guarantee scheme, the export credits and the deferral of tax, today the Chancellor will announce new measures to speed up the resumption of lending to businesses and home owners, and the Minister for Housing will announce a £400 million package of measures which, building on our help with mortgages to avoid repossessions, will help up to 18,000 first-time buyers draw on the home shared equity scheme to get on their first rung on the housing ladder—real help to families and businesses now, possible only because we are prepared to make a fiscal stimulus in the economy.
	In advance of Copenhagen next year, the summit agreed a new energy and climate change policy supported by all member states. When it is approved by the European Parliament, as I believe it will be, the programme will put into European law four far-reaching commitments: a 20 per cent. cut in greenhouse gas emissions by 2020, which, as part of the right international agreement, we will raise to 30 per cent.; a target that 20 per cent. of the European Union's energy will come from renewables by 2020; a strengthened European Union emissions trading scheme with 100 per cent. auctioning of permits in the power sector, the introduction of auctioning for other sectors of the economy and help to ensure that businesses in international markets can adjust; and a financing mechanism to make potentially around €9 billion available for the commercial demonstration of carbon capture and storage.
	Carbon capture is a transformative technology that every major economy will need, to ensure that it can continue to use coal, oil and gas without contributing to climate change. These commitments make Europe the first continent to make legally binding the detailed policies required to set itself on a path to a low-carbon economy. They provide a clear signal to the rest of the world that an international agreement on climate change can be achieved in Copenhagen next year. This was matched by agreement at the United Nations talks in Poznan at the same time, where a framework for countering deforestation was agreed. Britain will make a contribution of £100 million to that from our environmental transformation fund for sustainable forestry activities in developing countries.
	At the European Council, agreement was also reached on measures to answer concerns expressed to us by Ireland. All countries were agreed that there could be no change or amendment to the Lisbon treaty and that we should proceed to ratification, with the Irish agreeing to hold a referendum within the next year. At the same time, to meet Irish concerns, it was agreed: that the Lisbon treaty, as we have always made clear, in no way affects the rights of member states to make taxation decisions; that the treaty in no way affects the individual defence policies of member states, including our obligations to NATO and Ireland's traditional neutrality; and that because, as we have been clear, the charter of fundamental rights creates no new rights at a European Union level, the Irish constitution provisions on the right to life, education and family are not affected by its incorporation into the treaty—nor are they affected by the justice and home affairs provisions of the treaty from which Ireland has an opt-out. The Lisbon treaty allows for the Council, by a unanimous decision, to agree to ensure that each member state retains a Commissioner—and this, we stated, we would be prepared to agree to.
	The Council also made an important statement on the middle east process. The Council welcomed efforts to give renewed momentum to the Arab peace initiative and affirmed that the EU will do all it can, practically and politically, to support the peace process and to urge the new US Administration to make it a major priority in the new year.
	Let me turn to Afghanistan, India and Pakistan. I have already paid tribute to, and I reiterate, the service, sacrifice and dedication of our armed forces. Today, I can inform the House that the increased compensation payments have come into force—a doubling, for the most serious injuries, to a new maximum lump sum of £570,000 for armed forces personnel wounded in action or otherwise, an increase that means that around £10 million will be paid to 2,700 troops who have been awarded lump-sum payments.
	While in Afghanistan, I and the Chief of the Defence Staff met President Karzai and took stock of our strategy with commanders and senior officials. We saw at first hand the hard and dangerous work that the armed forces are doing in very arduous conditions, far from home. Our goals in Afghanistan are clear: to support democracy and confront terror at its source; to build the Afghan capability by training its army and police to spread the rule of law into empty spaces on the map which shelter terrorism, narcotics and other problems; in all this, to root out corruption, respect local ways of life and strengthen traditional Afghan structures; and to give Afghan people an economic stake in the future.
	Free and fair elections are an essential part of Afghans taking control of their own security and destiny. So as we approach the Afghan elections planned for next year, on top of the work that we are doing with NATO and the Afghan army to ensure security for those elections, we are pledging to contribute $10 million to help with voter registration. In return for this renewed commitment, and others, that we will make from Britain, I have asked for quicker progress on the decisions at the NATO summit on burden sharing, and I have asked President Karzai for leadership in tackling corruption. For our part, we are offering a multi-agency taskforce which we are ready to send immediately to tackle corruption.
	Five years on from the first free and fair elections Afghanistan has seen in decades, we should reflect on what has been achieved. As Governor Mangal of Helmand, whom I met on Saturday, said,
	"it has been a hard year for our brave police and soldiers, but it has been a much harder year for our enemies who have found through experience that they cannot defeat us."
	Today, with 5 million refugees returning to Afghanistan, 4 million more children in school, great improvements in health care, including massive reductions in child mortality, and the national income up 70 per cent., our task is to ensure that violence and insecurity do not threaten that progress.
	Security depends on proper burden sharing. In recent weeks we have had to respond to the threat from insurgents in the district of Nad-e Ali near the provincial capital of Helmand. The operation involves 1,800 troops, not just from Britain but from Denmark, the USA and Estonia. It is a model of burden sharing that we need to see replicated across the whole of Afghanistan. Forty-one countries are involved in the NATO mission, but the burden is not always shared equally. As the international community and the American President-elect contemplate strengthening our commitment to Afghanistan, it is vital that all members of the coalition contribute fairly. This will be a subject of the NATO meeting on 3 and 4 April.
	The second pillar of security in Afghanistan is enabling the Afghan people to take greater control of their own affairs by training thousands of Afghan soldiers and thousands of police. With our help, Governor Mangal is starting to work with tribal leaders, whom I met in Musa Qala—a place that only last year was in Taliban hands, but is now building basic services such as roads, power and water, and new schools and hospitals, which are having a tangible impact on the lives of Afghan people. This is starting to bring to Helmand the wider progress that we have seen in other parts of Afghanistan. To reinforce this progress, and having been briefed on the decision by the British commander—as is his right—to call forward reserves to work with our allies and deploy them on a temporary basis in the campaign in central Helmand, the Defence Secretary and I have decided, on advice from the defence chiefs, to approve until August, including the period of preparation for the elections, an increase in the number of British troops deployed to Afghanistan from just over 8,000 to around 8,300.
	We, the Americans and the international community as a whole increasingly recognise that we cannot deal with Afghanistan in isolation from Pakistan. There is a chain of terror that links the mountains of Afghanistan and Pakistan right through to the streets of the UK and other countries around the world, and that chain of terror must be broken. On 27 November, the whole world learned that terrorists based in Pakistan can strike anywhere, when a murderous assault condemned by the whole world saw 12 terrorists kill 175 people in Mumbai, including British citizens. This weekend, I met Prime Minister Singh and President Zardari to discuss action that now has to be taken. I expressed my condolences to Dr. Singh, and through him to the Indian people, and assured him that the whole of Britain stands fully alongside India in its determination to see those responsible brought to justice.
	I pay tribute to the efforts in Pakistan to deny the federally administered tribal areas as a training ground for terrorism and for the insurgency in Afghanistan and for terrorism. Indeed, more than 100 Pakistani troops have died since July this year in that area. Plots hatched in the FATA have a direct impact on the UK: of the security services' top-priority terrorist investigations, three quarters have links to Pakistan. So our commitment to countering terrorism and the empty spaces that shelter terrorism, and to building local capacity in Pakistan to do so, must be just as strong in Pakistan as in Afghanistan. The time has come not for more words but for more action. We will offer our support to the democratically elected Government of Pakistan, but that Government must act rapidly and decisively against the terror networks based on their soil.
	Pakistan's own future depends on action against those within its borders who are bent on the destruction of its elected Government and Pakistan's relations with its neighbours. To make this effective, Britain will work with both India and Pakistan to continue building counter-terrorism capability. Yesterday, I was able to announce more help on bomb disposal capability, scanning devices and airport security, and help to draw up new laws and to set up counter-extremism centres. Our assistance programme to Pakistan is the most comprehensive we have with any country, and will now include a programme, initially worth £6 million, to tackle the causes of radicalisation.
	No matter how serious the other tasks we face, security is the first duty of Government. We will always maintain our vigilance against the evils of terrorism. I commend this statement to the House.

David Cameron: I join the Prime Minister in paying tribute to our servicemen Marine Damian Davies, Sergeant John Manuel, Corporal Marc Birch and Lance-Corporal Jamie Fellows, who were all killed in Afghanistan, and Corporal Lee Churcher, who was killed in Basra. It is particularly poignant talking about their families' tragic loss at this time of year, but it should remind us of the bravery our troops show every day of the year.
	Let me deal with the Prime Minister's visits first. On Afghanistan, one of the lessons of Iraq was that the Government must give clear and frank assessments of what is happening on the ground. Does he agree that there are real causes for concern? The Taliban are operating closer and closer to Kabul, the road network is increasingly unsafe, and the number of Taliban and their armaments appear to be growing rather than shrinking. Does he agree that as well as a realistic assessment of conditions, we need a realistic mission? Should it not focus predominantly on security and rooting out terrorist training, not on an unrealistic objective of completely transforming a society thousands of miles away?
	Clearly, our servicemen and women are doing a great job, but what about the others who are key to success? Can the Prime Minister tell us more about the representations he made to President Karzai, not just about fraud in his Government, but about drug dealing by those associated with them, and corruption by public officials?
	On troop numbers, the Petraeus review is vital and it would be helpful if the Prime Minister could tell us about our contribution to that review, but surely we should send more troops only if there is a proper political strategy to help to deliver security, if there is more effective burden sharing with our NATO allies and if there is a corresponding increase in vital equipment, especially Chinook helicopters and armoured vehicles.
	Just as important is progress in Pakistan. Does the Prime Minister agree that the British public will not understand why we are making sacrifices to prevent terrorist training camps from being established in Afghanistan if they are still operating across the border in Pakistan? He said that he received assurances from President Zardari about taking action, but what is the Prime Minister's assessment of the ability of the Pakistan army, and the Pakistan intelligence services, to deliver on the commitments that he was given? Did he raise those matters directly with the Pakistan chief of general staff, General Kayani?
	Turning to Mumbai, I know that the Prime Minister agrees that we must strengthen our relationship with India. Can he tell us more about the close co-operation we need between our security services? Clearly, this style of attack on a major city in an open society is a new tactic. Can the Prime Minister tell the House what the Government will do to address that threat here?
	Turning to the European Council, on climate change we support the so-called 20/20/20 package, but will the Prime Minister confirm that the UK target for renewables is actually lower than 20 per cent., at 15 per cent. of total energy consumption by 2020? Would he accept that this environmental agreement shows that it is possible for Europe to take important decisions on important issues without new treaties and without new constitutions? The Lisbon treaty, by the way, has just seven words on the environment; that is all that it has on the subject.
	On the Lisbon treaty— [ Interruption. ] Yes, I read it, actually—Europe's leaders had to make a big decision: do they respect the wishes of the people? The answer was a resounding "no". Just what is it with this Prime Minister and elections? An unelected Prime Minister wants to force the Irish people to vote twice because he did not like the result the first time, and he refuses to allow the British people to vote once because he is afraid that he would not like the result of that, either. Does he agree that one of the advantages of an early election here in Britain would be that the Lisbon treaty could be put to the people in a referendum, and we could let them decide?
	Turning to the economic package, the Prime Minister makes three claims. First, he says that Britain is well prepared. If that is true, can he tell us why the pound has fallen to another record low? Is he aware that this lunchtime, his Olympics Minister said that Britain is
	"facing a recession deeper than any that we have known, almost certainly"?
	So is it not clear that we are not well prepared?
	Secondly, the Prime Minister says that those in the EU all agreed with him that every country should take part in the same sort of fiscal stimulus, regardless of their situation. So why does the European Commission statement for the Council state:
	"It is clear that not all Member States are in the same position.
	Those that took advantage of the good times to achieve more sustainable public finance positions... have more room for manoeuvre now."
	The Prime Minister did not read that out. It continues:
	"For those Member States, in particular those outside the euro area, which are facing significant imbalances, budgetary policy should essentially aim at correcting such imbalances."
	In other words, "If you're in a hole like the one the Prime Minister has put us into, stop digging."
	Thirdly, the Prime Minister said that he is setting the agenda with his particular measures—he is leafing through his papers to try to find them. Let us take VAT. The French Finance Minister said:
	"As far as we're concerned...we're not certain that when prices go down, a VAT reduction is that effective."
	The German Social Democrat budget spokesman said that the cut in VAT was counter-productive.
	That brings me to the Germans. I note that the Prime Minister did not really mention them—or perhaps he did once, but he thinks he got away with it. Is not it true that the German Finance Minister—another Social Democrat, by the way—has completely blown the Prime Minister's credibility out of the water? He described his approach as "crass" and mistaken. He criticised Britain's debt, which he believes will
	"take a whole generation to work off."
	In response, the Prime Minister claims that Germany's fiscal expansion backs up his own plans. However, Germany went into the downturn with a budget surplus; it fixed the roof when the sun was shining. In contrast, the Prime Minister led Britain into the downturn with the largest budget deficit in the industrialised world. Next, he claimed that this was all to do with internal German politics, but has not that claim been shattered, too? The Christian Democrats' budget spokesman said that the German Finance Minister's comments
	"have nothing whatsoever to do with internal German politics... the tremendous amount of debt being offered by Britain shows a complete failure of Labour policy".
	The Prime Minister is always telling us that he wants a consensus. He certainly got one in Germany: they all think that he has got it wrong.
	With the EU Council in mind, will the Prime Minister act to deal with what the Governor of the Bank of England says is the most pressing challenge: getting banks lending again? Will he adopt our proposal for a national loan guarantee scheme? I have the draft Bill here. Will he support it, so that we can get business trading and Britain out of the recession? Instead of dreaming about saving the world, when will the Prime Minister start saving businesses here in Britain?

Gordon Brown: Let me say first of all that I agree with what the right hon. Gentleman says about the losses of life in Iraq and Afghanistan. It is particularly poignant, as we face Christmas, that so many families will be without their loved ones as a result of those deaths.
	I thank the right hon. Gentleman for his support for what we are doing on Afghanistan, Pakistan and India. Our plan in Afghanistan is clear: to complement the military action that we have to take—because this is the front line against the Taliban—by helping Afghan people take more control of their lives and have a stake in the future. To do that—yes, we must tackle corruption. That is why we have offered President Karzai a multi-agency taskforce, which we will put at his side in Kabul to help him deal with the problems. It is also why we have taken the necessary action to increase our troop numbers in central Helmand so that they can deal with the Taliban in that vital area of Helmand.
	When I was in Musa Qala, I could see that a place that the Taliban held a year ago is now a place where there is law and order. A school and a hospital had just been built and opened as a result of the investment that we and others are making. Afghan people are now taking control of the judiciary system and law and order in that area. If that can be done in Musa Qala, it can be done in other parts of the region.
	I have to dispute what the right hon. Gentleman says about the money that we are providing for helicopters and vehicles. We announced only last week more provision for helicopters, and we have spent £1 billion on vehicles. We are determined that our troops have the best and most modern equipment.
	I agree with the right hon. Gentleman that we must deal with the root of the problems in Pakistan, and I support what President Zardari is doing. I did meet General Kayani and talked to him about his responsibilities and those of the Pakistani army and the ISI to ensure that terrorists who have operated from Pakistan to do damage in India are properly rooted out, that the training camps of TEL are closed down and that order is brought back to the FATA areas. I believe that General Kayani shares President Zardari's view that those things must be done, so that Pakistan can show the world that it is taking the action that is necessary.
	I now turn to the European meeting. The right hon. Gentleman did not say much about climate change, but he questioned whether we were doing enough. I believe that the agreement that we have reached on a 20 per cent. cut in emissions by 2020 is an historic agreement. This is the first time that 27 countries have come together, and that was possible only because we are part of the European Union. It is now possible to move forward to the next stage, which is to win a worldwide treaty at Copenhagen, because the European Union—and, hopefully, the American Government—can join together in taking the action that is necessary.
	As for Ireland, let me repeat to the right hon. Gentleman that the agreement to meet Irish concerns means that the Lisbon treaty in no way affects the rights of member states to make taxation decisions or individual member states' defence policies—both things that we in Britain have always insisted on. We have also made it clear that the charter of fundamental rights creates no new rights at the EU level. That is something that we have always insisted on, and which the Irish now want as part of their protocol. Therefore, it was perfectly proper for us to support the Irish in their determination to get those three things made absolutely clear, as well as to have a Commissioner of their own.
	The right hon. Gentleman talked about what the European Union is doing on the economy, but it is interesting to read what President Sarkozy has said:
	"Everybody agrees that there is a need for economic recovery along the lines of the...Barroso plan, around 1.5 per cent."
	and what Chancellor Merkel has said:
	"Germany has...declared its willingness with regard to this 1.5 per cent....You know...in January we will discuss the matter of further steps".
	The one thing that the right hon. Gentleman tries to deny, by quoting people whom he would never quote in ordinary circumstances—German Finance Ministers and European Union politicians—is the one thing that is absolutely true: that the whole of the rest of Europe wants a fiscal stimulus, and wants it to complement the interest rate cuts that are being made. The Conservative party does not even have the Czech social forum with it on this occasion. Not one of the leading parties in Europe supports the position of the Conservative party.
	Why is that the case? Because the Conservative party has committed itself not only to doing nothing during this period, but to public spending cuts. The Conservatives say that they will cut public spending from 2010. Just at the point when people need help, they revert to the old policies of the 1980s and 1990s. That is what made people think of the Conservative party as the nasty party. The Conservatives will give no help to home owners and no help to small businesses, because they will spend no money. They have announced support for a national business guarantee scheme, but there is no public money behind it, as a result of their decisions to cut public spending, and there is no help for the unemployed. This is the Conservative party that we are coming to see. At a time when people need help at Christmas, the Conservatives would pull the help away. It is the same old uncaring Conservative party of the past.

Nicholas Clegg: May I add my expressions of sympathy and condolence to the family and friends of Lance-Corporal Steven Fellows, Corporal Marc Birch, Sergeant John Manuel and Marine Damian Davies, who tragically lost their lives in Afghanistan, and to the family and friends of Lee Churcher, who, sadly, died in Iraq? We all owe them a huge debt for their service and sacrifice.
	Like so many European Union summits before it, last week's summit was stronger on words than action, richer in promises than in delivery. I welcome the summit proposals for a fiscal stimulus to boost the economy, in the shape of tax cuts and public investment. The question, then, is: why is the Prime Minister not properly practising here at home what he has preached in the European Union? Instead of having his short-term VAT cut, why will he not make the big, permanent, fair tax cuts for ordinary families that were called for at the European summit?
	Instead of wasting extra borrowed money on that VAT cut, why will the Prime Minister not invest in green infrastructure for Britain's future, creating green jobs and green growth, as were also called for at the summit? Does the Prime Minister not see that if he does not boost growth in that way—permanent tax cuts and green jobs—Britain will fall behind those countries in Europe that he has been boasting about beating for about a decade? Already, in some places one can no longer buy a whole euro for a pound. Does the Prime Minister recognise that many eurozone economies could surge ahead of Britain, under his leadership, leaving us once again as the sick man of Europe?
	The summit was a wasted opportunity to defeat climate change. All those of us who want our children to have a planet worth living on will be disappointed that dirty industry has been given extra time to clean up its act. Will the Prime Minister tell us when the commitments will be reviewed, and when the loopholes for dirty industry will finally be closed?
	The Prime Minister also told us about his visits to Afghanistan, India and Pakistan. I welcome his words of commitment to those countries and support the temporary increase of troops until August in Afghanistan. Does he now recognise that any lasting peace in that country will have to come from a regional agreement—like the Dayton peace accords in the Balkans—and that we need to start talking now to China, Russia and Iran? Does he also agree that, if the local pragmatists in the Taliban are to be split from the national fundamentalists, the talks with the moderate Taliban that are going on in the shadows need to be brought out into the light and given new emphasis?
	Finally, I was disturbed to see that Zimbabwe warranted only a few words in the conclusions of the summit, even as millions face disease and starvation, and no words at all from the Prime Minister this afternoon. The Government have got their priorities wrong: instead of being tough on Mugabe, they are being tough on his victims, by refusing to allow Zimbabwean asylum seekers here to work, and, despite assurances to the contrary, by still deporting Zimbabweans to their fate—including Privilege Thalambo, who was arrested with her two daughters for deportation just last Friday.
	The Prime Minister talks with great passion about Africa, but he is not providing the right leadership. He has given the wrong leadership on the Congo. Why, instead of encouraging EU leaders to send EU troops, has he encouraged them not to send them? He has also given the wrong leadership on Zimbabwe. Why has he not pushed for international action by the United Nations under the new doctrine of responsibility to protect?
	Does the Prime Minister not agree that, on the economy, on climate change and on Africa, making the right promises is the easy bit, but delivering them is the real test?

Gordon Brown: The right hon. Gentleman's whole theme was that the summit was stronger on words than on action; if any group in the world is stronger on words than on action, it is the Liberal party.
	I shall answer individually each of the questions that the right hon. Gentleman has asked. On troops in Afghanistan, I am grateful for his support for the additional mission to ensure that central Helmand is free of the Taliban.
	On Zimbabwe, I disagree that we have done little; we have done a huge amount to try to get humanitarian aid to the people who are affected by cholera, to persuade the southern African states to take the necessary action, to bring this forward to the Security Council, as we are doing, and to ensure that the whole world understands the blood-stained regime that we are dealing with in Zimbabwe. We will continue our efforts to try to persuade African leaders to take a tougher stand on the issue.
	On the Congo, I think that the right hon. Gentleman realises that, in preference to rushing to deploy an EU force at the moment, the most important thing is to strengthen the UN force. It is to rise from 17,000 to 20,000, and we have put aside some money to help the recruiting of the additional troops for work in the Congo. By far the quickest and most effective way of getting help to people there, and of dealing with the incursions that are taking place, is to strengthen the numbers, the quality and the leadership of the UN force on the ground.
	On climate change, I also disagree with the right hon. Gentleman. There is a debate to be had about carbon leakage, and there is to be a rigorous examination of its impact. No action will be taken to exclude the non-power sectors of the economy from auctioning until that rigorous examination has been carried out. The proposals will then go back to the Council for further discussion within six months, so that we can be clear that carbon leakage is not being used as an excuse to escape responsibility for taking action on climate change. Our objectives of a 20 per cent. cut in emissions, of 100 per cent. power auctioning and of a €9 billion commitment to carbon capture and storage were all achieved at the summit, and, for all the difficulties that the right hon. Gentleman has raised about carbon leakage—a matter that has still to come back to be discussed in full later—there have been enormous advances that will put Europe in a position to take the lead in Copenhagen in securing a climate change agreement.
	I know that the right hon. Gentleman does not favour the VAT cuts that have taken place, but I believe that they are already making a difference, and I hope that he will support the increase in public spending that is taking place as a result of decisions that we have made. Not only has £5 billion already been allocated to small businesses, with a great deal more to come, but a £10 billion increase in the capital budget from last year to next year will enable us to proceed with our plans for roads, transport, schools and hospitals in a way that will employ more people. I hope that the Liberal party will continue to support that action, which is necessary to inject more capital spending into the economy at a time when it is most needed.
	The fact of the matter is that monetary policy has a transmission mechanism that is impaired, and we cannot rely totally on monetary policy. No other major country in the world is saying that monetary policy alone can do this work, apart from the people who represent the Conservative party at the moment. Fiscal policy is absolutely essential, especially at a time of low inflation and low interest rates: the case for using fiscal policy is even stronger then.
	It is unfortunate that the Conservatives have not learned the basic lesson of the 1970s and 1980s that a recession is prolonged by a failure to invest and a failure to use capital spending. The Liberals and I are agreed on the need for capital investment. The Conservative party should go back to the drawing board and think again.

Mike Gapes: The Prime Minister has rightly referred to his efforts to improve the climate between India and Pakistan and to secure greater co-operation against terrorism, but does he not agree that the Afghan Government also have a responsibility to improve co-operation with Pakistan so that there is a collective effort? He referred to burden sharing. What discussions has he had with his German partners in NATO about Germany's beginning at last to pull its weight in European and NATO security, especially in the context of the dangerous areas in Afghanistan?

Gordon Brown: I should point out to my hon. Friend that the German Government have taken responsibility for the training of police in Afghanistan. They have a number of people allocated from Germany to do that, and they are taking responsibility for the rest of the European Union to do that.
	If we are to succeed in Afghanistan, we will have to increase not only the number of soldiers and armed forces trained—70,000 are being trained at the moment—but the quality and quantity of police on the ground to do the job. Those who visit Musa Qala, as I did, will see that the police force is working in providing law and order. In every other part of Afghanistan we must carry out the training that is absolutely essential, and the German Government have agreed to take the lead in that.

James Arbuthnot: As I listened to the Prime Minister reading out the list of reasons why we needed to be in Afghanistan, I found myself agreeing with them, but not inspired or enthused by them. Is there anything that he can do to inspire the country so that it actually starts to believe, with some enthusiasm, the reasons why we need to be in Afghanistan?

Gordon Brown: I have said before and I say again—and I think that the country understands this—that Afghanistan is the front line against the Taliban as well as al-Qaeda. If we are to prevent terrorists from Pakistan and Afghanistan from entering our country, we need to be both in Afghanistan and working with the Pakistani authorities to deal with terrorism.
	Afghanistan is now a democracy. Schools have been built and young people, including girls, are going to school and receiving an education. Health centres are also being built. Yes, the Taliban have changed their tactics and it is now guerrilla warfare that is being practised through roadside devices, suicide bombings and other means, but we are in a position to turn the Taliban back in many areas in Helmand, and where we have not yet done so, we are taking action to do so. I believe that if we are to protect ourselves at home, we must remember that the terrorism that affects us in Britain starts from Pakistan and Afghanistan.

Stuart Bell: I welcome the Prime Minister's statement that the European Council has endorsed the European Commission's recommendation that €200 billion should be put into the European economies, building on the €62 billion from France, the €32 billion from Germany and the €2.18 billion from Portugal, as well as a future $800 billion from the United States. Given the flawed monetary policy to which the Prime Minister has referred, is it not beyond peradventure that a monetary policy plus fiscal stimulus is the only way out of the difficulties, and that to talk consistently of a national loans scheme for small businesses when one already exists is simply a camouflage for having no policy at all?

Gordon Brown: My hon. Friend is absolutely right that what used to be called the one-club policy of using only interest rates—of using only monetary policy—will not work in the circumstances that we now face. The more the Conservative party ties itself to that, the more it ties itself to the failed policies of the past. The reason why fiscal policy is important is that we are in a period of low inflation with low interest rates—low inflation next year, following the low interest rates we currently have. That is why fiscal policy can have the greatest effect. If the Conservative party is going to say that this is the right time to stop building schools, to stop building hospitals, to cut back on transport and to cut back on the roads, and to say that it will severely cut public spending from 2010 onwards, it will have to explain why it is making nurses, doctors, teachers and others unemployed. That is the policy of the Conservative party.

Peter Tapsell: May I remind the Prime Minister that several years and four Defence Secretaries ago—the first of whom, the right hon. Member for Ashfield (Mr. Hoon), is now sitting next to him—when we sent our first small contingent to Afghanistan, I warned that, as the Russians had found in the 1980s, 300,000 men would not be sufficient to achieve military victory in that country, and that the Pashtun Taliban are a religious-tribal sect with no international ambitions who have always disliked the al-Qaeda Arabs and will be thankful to be rid of them if they can be rid of all foreign troops at the same time? Now that the Prime Minister has at last recognised that the threat of international terrorism comes primarily from Pakistan, why can we not have a settlement with the Afghans on that basis?

Gordon Brown: The hon. Gentleman cannot deny the evidence of the Taliban working with al-Qaeda. He cannot deny the evidence that people are coming across the borders from Pakistan to support the Taliban in action against British troops, as we saw in the suicide bombing carried out by a young child in Afghanistan last week. He cannot deny the interrelationship between what is happening in Pakistan and Afghanistan. We have got to take action to protect our troops in Afghanistan, but also to protect the democracy of Afghanistan, and we have got to take action to persuade a democratically elected Government in Pakistan and their army to take action against terrorism within their borders.

Keith Vaz: May I warmly welcome the Prime Minister's visit to India so soon after the events in Mumbai? That underlines the fact that we have a very special relationship with India; the Prime Minister was, of course, the first Head of Government to visit India after the Mumbai tragedies. When he told the President of Pakistan that 75 per cent. of the plots being investigated were rooted in Pakistan, what was the President's reaction? Will my right hon. Friend confirm that the Government will provide any additional resources that are necessary for our high commission in Islamabad, in order to deal with this very serious problem?

Gordon Brown: I am grateful to my right hon. Friend for his comments. I passed on the condolences of the entire British people for the loss of 175 lives as a result of the terrorist activities of only 12 people in Mumbai a few days ago. I offered the Indian Government any help with the investigations that we can give, and we talked about how we could increase our counter-terrorism activities together so that India and Britain can work more closely to identify terrorism and the sources of it.
	My right hon. Friend is also absolutely right that a heavy responsibility falls upon Pakistan. It has already been identified that the terrorists who struck in India came from Pakistan. It is also true that many people from Pakistan have gone into Afghanistan and attacked British troops there. My right hon. Friend is absolutely right that the evidence suggests that three quarters of the terrorist plots we have had to investigate in Britain have links in one way or another with Pakistan. That is why I said to the President of Pakistan, and the Prime Minister, that we will be prepared to give them help to counter terrorism—help in their capabilities, in advice, in strengthening their laws, and in building up action against extremism, particularly in the education of their children, so that they can expose the perversion of Islam that is taking place. However, that requires the Pakistan Government to take responsibility by taking the necessary action, particularly in the tribal areas. The President of Pakistan assured me that he was determined to take action, and we said that we would monitor what is done over the next few days.

Elfyn Llwyd: I fully associate myself with the words of condolence expressed by the Prime Minister earlier in his statement. On Afghanistan, he has announced the multi-agency taskforce, which as part of its remit will have some work to do rooting out fraud. Is it not therefore logical that it should also oversee the rebuilding of infrastructure?

Gordon Brown: There are other means by which the rebuilding of infrastructure is taking place in Afghanistan. The importance of clearing the roads of bombs and making the roads safe was mentioned earlier. The dam project is moving ahead as a result of international action and a lot of reconstruction is taking place in Afghanistan itself, so I do not think that a multi-agency taskforce should be the organisation that deals with corruption. The relationships at the centre of Afghanistan are trying to move forward the reconstruction, and of course, we are taking action in Helmand itself to build new facilities.

David Drew: My right hon. Friend is absolutely right to ignore the siren voices who are opposing reflationary measures at this time. In talking about the Germans—or some of them—may I say how disappointed some of us are to hear that they were against a number of the measures relating to further developments on climate change? That is a marked departure from their previous record. Would my right hon. Friend like to say to them that we would like them to be where they were previously, on both economic policy and environmental policy?

Gordon Brown: I can say that Chancellor Merkel supported all the main principles of the climate change package. The issue has been how we deal with carbon leakage, and a lot more work has got to be done on that, but 100 per cent. auctioning is to take place in the power sector, and there is an agreed 20 per cent. cut in carbon emissions. To be able to do that as a European Union, and also to invest in carbon capture and storage—€9 billion is to be invested in that—is substantial progress. Everybody who looks at the history of action on the environment knows that we have to build a consensus. If we can build one in Europe and persuade America that it is right that it takes action, it is possible that we will achieve for the first time an environmental agreement that all countries are prepared to sign.
	I agree with my hon. Friend on the economy that it is important that all countries support the fiscal stimulus, but he must recognise that the German Government have made a fiscal stimulus and are planning another. The only party of any significance that I can see that is against a fiscal stimulus is the Conservative party, because it made a terrible decision last week that it would cut public spending.

Michael Ancram: As it now appears from the Irish example that holding a referendum on the Lisbon treaty and voting no leads the European Union to make substantial concessions, why does the Prime Minister not, even now, take the same route and hold the referendum that he promised us before the last election?

Gordon Brown: We have had this argument in the House on many occasions, and every time that it is put to the vote, this side of the House wins and that side loses.

Tony Lloyd: My right hon. Friend will know very well that after many years of military rule, Inter-Services Intelligence, Pakistan's security service, is far from trusted as being under proper civilian control. Did he have a chance to discuss with President Zardari whether it is possible for Britain to lend assistance that will ensure that the democratic Government of Pakistan can bring the internal security service under that proper democratic control?

Gordon Brown: We did talk about how we can support the Pakistani authorities in many different ways, including helping them to rewrite laws to deal with terrorism, as we have had to do ourselves. I did offer support in a number of different ways to President Zardari. I also repeated to Mr. Kayani, who is the head of the armed forces, our offer of help to the Pakistani authorities, and we will continue to work with them to do everything that we can to support the Pakistani effort against terrorism in their own country. It is important to recognise that many Pakistan citizens have also been the victims of suicide bombings and that there have been many terrorist incidents within Pakistan itself. We want to give support to the Pakistan Government, but at the same time we are urging them to take more action, particularly against the organisation TEL, which has been held responsible for the Bombay bombings.

Nicholas Soames: I understand that the Prime Minister is leading a wider review on Afghanistan within Whitehall. If he decides to deploy more troops to Afghanistan, will he consider tasking them principally with the training of more men of the Afghan army and police, that being by far the most effective way of enabling the Afghans to take some control of their own affairs?

Gordon Brown: I agree with the hon. Gentleman, because it is important that the number of Afghan troops in Afghanistan is increased. Some 70,000 are being trained at the moment and more is being done every month—about 1,500 are being trained every month—but the figure will have to be a lot higher than that for a country the size and scale of Afghanistan. A new target of 120,000 has already been set. I do not think that that is big enough for the size of the country. I saw British troops training Afghan soldiers and working with them, and the Afghan soldiers are courageous and strong, but there needs to be more of them—the hon. Gentleman is absolutely right. That is something that we continue to push on President Karzai.

Paul Flynn: The previous increase in British troops in Afghanistan two years ago resulted in an increase in the deaths of our brave soldiers, from a total of seven to a total of 132. Is there not a grave danger that an increase in the number of troops means more targets for the Taliban? Is not the best way of consolidating the gains made in Afghanistan to embark on a new policy, based not on a military victory but on tackling the causes of terrorism with a peace strategy?

Gordon Brown: I should point out to my hon. Friend that our strategy is based on complementing the military intervention that is necessary to keep peace in Afghanistan and maintain democracy with other measures that will build up the confidence of the Afghan people so that they are enabled to govern themselves. That includes, as I have just said, training the Afghan forces and police, as well as building up local government, working with the tribes to create a means by which localities are properly governed and cleaning out corruption from the centre—on which I have pressed President Karzai, and why our multi-agency taskforce is going in. It also includes giving Afghan people a stake in their future—by helping them to become wheat farmers, for example, rather than farmers of drugs and narcotics—whether they are in villages, towns or in the countryside. That is our strategy for Afghanistan. It is necessary that we have the number of troops to deal with the Taliban, but it is also necessary that we train the Afghan army and police and that we invest in building the facilities that are necessary so that people have a stake in Afghanistan's future.

Paul Keetch: The Prime Minister says that there are more helicopters on the way, but may I ask him the same question that I asked him on 21 November 2007? When will the dedicated Chinook helicopters that were ordered by John Major for our special forces and delivered to Tony Blair in 2001 be fully available to be deployed by UK special forces in Afghanistan?

Gordon Brown: I agree that we have set aside a huge amount of money for additional helicopters. The timetable for their introduction depends on re-equipping many of them and, at the same time, training the forces to do so. I shall write to the hon. Gentleman specifically about the Chinook helicopters, but I can tell him that the money and the resources have been provided for the additional helicopters.

Gisela Stuart: At this weekend's international conference on Afghanistan in France, the Iranian Foreign Minister did not turn up, even though he was expected. Given what the Prime Minister has said about Afghanistan and the need to work with neighbouring countries, did he discuss either at the EU Council or on his visit to Afghanistan and Pakistan how to bring the Iranians into discussions about the future?

Gordon Brown: It is very difficult to say, when we are debating with the Iranians at the moment, whether they will accept that they will be under the non-proliferation treaty that they have signed up to. We have presented Iran with a choice: it can either be part of the international community and get all the advantages of being such a part, including being free of sanctions, or it can allow itself to become isolated by defying the international community on nuclear weapons. That is the choice that Iran has to make, and it affects all the other areas in which we operate.

Malcolm Rifkind: When the Prime Minister calls upon the Pakistani Government to do more to destroy the Taliban in the frontier areas, is he aware that the Pakistani army and intelligence agencies have always been influenced by the fact that successive Afghan Governments, over 60 years, have refused to recognise the legitimacy of the international frontier between Afghanistan and Pakistan, and that they believe that that thereby gives them reason to suspect that Afghanistan harbours aspirations to incorporate those provinces into its own country? Will he therefore seek to persuade President Karzai to reconsider this policy and, in the interests of Afghanistan itself and stability in the region, to recognise the legitimate frontier as that which currently exists between the two countries?

Gordon Brown: I understand the difficulties and the challenges that the right hon. and learned Gentleman raises, which result from history, but when I talked to President Zardari he informed me that he had made big changes. There has been a change at the head of the ISI and there are further changes in the departmental heads. It remains to be seen what happens as a result of that, but President Zardari was determined to tell me that the army is dedicated to the pursuit of terrorism. We will hold him to those words.

Jeremy Corbyn: The Prime Minister will be aware that it is now more than seven years since coalition forces were sent to Afghanistan, and he tells us today that there will be a small increase in British forces there until next August. If the situation is unchanged by then, will we have another increase? Is it not time for a complete rethink on the policy towards Afghanistan and are we not just heading down the route of the same failed philosophy that the Americans pursued in Vietnam—endlessly putting troops into a failing situation?

Gordon Brown: I have to point out to my hon. Friend that 41 countries are involved in this coalition, not just one or two. There are 41 countries determined not only to bring peace and reconciliation to Afghanistan, but to help to build a stronger democracy there. I have also to tell him that we will discuss at the NATO meeting on 3 and 4 April the burden sharing that is necessary for the future. I am determined, too, that other countries play their part in Afghanistan. This is the fundamental question, which brought us to Afghanistan in the first place: there is the front line against the Taliban. We have removed the Taliban from power in Afghanistan. I think that it is our duty to help to uphold the new democracy in that country.

William Cash: How does the Prime Minister justify his endorsement of the deceitful bullying of the Irish people in these conclusions with his claim to be a democrat?

Gordon Brown: The Irish brought to the EU concerns that they had expressed about the interpretation of the treaty and the treaty. We agreed that there would be an extra Commissioner, but that is within the power of the Lisbon treaty. We also agreed to reiterate what is important to us in Britain as well: the Lisbon treaty in no way affects the right of members on taxation decisions and in no way affects our defence policy. As we have a protocol on the charter of fundamental rights, it was right that the Irish be given assurances on that as well. That is what has happened. I would have thought that people in the House would support it.

Roberta Blackman-Woods: I am sure that my right hon. Friend agrees that it is necessary to see through the process of reconstruction in Afghanistan until a stable, strong and fully democratic state emerges. Will he say more about the efforts he is making to get other countries to play a greater role in burden sharing so that that state can emerge sooner rather than later?

Gordon Brown: As my hon. Friend will know, France and other countries have upped their contribution of forces during the past year. I think that we have 52,000 troops in total from a large number of countries in Afghanistan at the moment, but I have made it clear that we need further burden sharing. Whether it is by providing more forces or more help with training forces or the police, or whether it is by providing equipment such as the helicopter fund that has been formed so that people can contribute as we and others will to other countries bringing helicopters to Iraq, we are determined to continue the process. If 41 countries are part of the project, they must make a contribution to it. The burden sharing that I have talked about will be discussed at NATO on 3 and 4 April.

David Heathcoat-Amory: As the Irish people are to be made to vote again on the Lisbon treaty on the ground that they made a mistake last time, will the Prime Minister call an early general election on the ground that the British people made a mistake last time?

Gordon Brown: No, and I would have thought that when the right hon. Gentleman looked at the Irish statement as a result of the European Council, he would support most of it, not oppose it.

Richard Burden: In relation to matters discussed at the European Council, does the Prime Minister agree that one of the things that will be vital to long-term economic recovery is ensuring that strategically important industries can weather the current storm and prosper into the future? In that context, will he say a little more about efforts being made at a European level in relation to the automotive industry, whose health is vital to many EU member states?

Gordon Brown: Decisions on the automotive industry will be made by individual countries, which will look at the situation and make their own judgments about what is likely to happen. My hon. Friend's question prompts a more fundamental question about whether one is prepared to help families and businesses in times of great difficulty. We are prepared to do so; the Opposition would not.

Crispin Blunt: The evidence is that the position of the international community, including the Karzai Government, in Afghanistan is becoming more difficult day by day. It is also evident that public support in the UK for our troops in Afghanistan is declining rather than increasing. The Prime Minister is conducting this important and much-needed review of policy towards Afghanistan. Can the House of Commons have the opportunity to contribute to the review through at least a day, but preferably two days, of debate before it is completed?

Gordon Brown: We have regular debates in the House of Commons, such as the debate on defence that took place very recently. Of course a debate on Afghanistan can take place, if the Opposition choose to propose that subject. At the same time, we will keep the House fully informed of any decisions that we propose to make on Afghanistan.

Points of Order

Andrew Pelling: On a point of order, Mr. Speaker. Has any Minister indicated to you whether a statement will be made on the alleged Madoff fraud? Surely, as $50 billion is a huge amount of money, a ministerial statement to reassure the UK markets would be appropriate.

Mr. Speaker: I am sure that the Ministers concerned will have heard the hon. Gentleman's concerns.

Lindsay Hoyle: On a point of order, Mr. Speaker. Has anybody asked you for a statement on the failure of the Greater Manchester congestion charge, which affects not only the north-west but many other areas that want to bring in such a scheme? Has anyone brought that subject to your attention, and may we have a statement?

Mr. Speaker: No one has brought that matter to my attention apart from the hon. Gentleman through his point of order.

Debate on the Address

[6th Day]

Debate resumed (Order,  11  December).
	 Question again proposed,
	That an humble Address be presented to Her Majesty as follows:
	Most Gracious Sovereign,
	We, Your Majesty's most dutiful and loyal subjects, the Commons of the United Kingdom of Great Britain and Northern Ireland in Parliament assembled, beg leave to offer our humble thanks to Your Majesty for the Gracious Speech which Your Majesty has addressed to both Houses of Parliament.

Economy, Pensions and Welfare

Mr. Speaker: I wish to inform the House that I have selected for debate the amendment in the name of the Leader of the Opposition. Standing Order No. 33 provides that on the last day of debate on the motion for an address to Her Majesty the House may also vote on a second amendment, selected by the Speaker. I have selected the amendment in the name of the leader of the Liberal Democrats. The vote on the amendment will take place at the end of the debate after the amendment in the name of the Leader of the Opposition has been disposed of.

George Osborne: I beg to move an amendment, at the end of the Question to add:
	"but humbly regret that the Gracious Speech fails to deliver a clear direction for British economic policy, does not contain measures to assist in building a low debt and low tax economy, and lacks any radical action to unblock the credit channels of our banking system; note that many individuals have seen returns on their savings severely reduced as a result of the economic downturn and regret that the Government has no plans for emergency protection of pensioners with a suspension of annuity rules; further regret the absence of a clear strategy on value added tax; and further regret the absence of measures to avoid the United Kingdom undergoing the worst recession in the G7 next year.".
	Thanks to your decision, Mr. Speaker, to grant our request for an emergency debate, it has been three weeks since we last examined the Government's handling of the recession that is now engulfing our country. We were then told by the Chancellor from the Dispatch Box that the measures in the pre-Budget report would hasten the end of the recession by bolstering confidence at home and the credibility of British Government policy abroad.
	What has been the judgment in the last week alone on the Chancellor's claim? The pound has fallen against the euro, hitting a record low earlier today and demonstrating again the Prime Minister's maxim that a weak currency is a reflection of a weak economy and a weak Government. The loss of international credibility has sent the cost of insuring British Government debt higher than insuring the debt of those two homes of French fries, Belgium and McDonalds. An independent survey out today says that the drop in the VAT rate seems to have made little difference in lifting consumer confidence and encouraging consumers to spend. The head of Barclays bank says that despite the measures announced by the Government over the past few weeks, such as those on stamp duty, house prices will fall by at least as much next year as they have this year.
	This lunchtime, the Minister for the Olympics has contradicted every statement made by the Prime Minister and the Chancellor over the past six months by admitting, in her words, that Britain is facing a recession
	"deeper than any that we have known".
	So, what about all that talk about the 1980s and 1990s now? The Finance Minister of the world's third largest economy has described the Government's approach as "crass" and "breathtaking" and as raising debt to a level that will take "a whole generation" to pay off. That is the problem with saving the world—sometimes the world answers back.
	The Chancellor and the Prime Minister tried to dismiss the German Finance Minister's comments—indeed, the Prime Minister again did so just a few minutes ago—as their being all to do with the internal politics of Germany. Mr. Steinbrück is a Social Democrat, and the Christian Democrats issued the statement:
	"Peer Steinbrück's comments have nothing whatsoever to do with internal German politics, as Prime Minister Brown has suggested."
	Indeed, one could feel the sense of schadenfreude after all those brusque encounters with our Prime Minister at ECOFIN meetings, when the spokesman continued:
	"After years of lecturing us on how we need to share in the gains of uncontrolled financial markets, the Labour politicians can't now expect us to share in its losses. The tremendous amount of debt being offered by Britain shows a complete failure of Labour policy."
	That is not a Conservative politician—it is not even a Liberal Democrat—but the spokesman of another Government.
	Of course, this debate should be about more than the mistakes that the Government made with their pre-Budget report, serious though they are; it is about the legislative programme for the coming year, so my hon. Friend the Member for Epsom and Ewell (Chris Grayling) will speak about the welfare reform and child poverty Bills. Let me make it clear to the Chancellor that our offer of co-operation to ensure that the Banking Bill, carried over from the previous Session, passes through Parliament by next February still holds, but we expect the powers we give the regulators to be enforced in the courts if necessary, as my right hon. Friend the Leader of the Opposition made clear today.
	I wish that today's debate was an opportunity to examine the Government's response to the Equitable Life scandal and the damning report from the parliamentary ombudsman. After all, only a couple of weeks ago the Prime Minister made an absolutely unambiguous promise at the Dispatch Box:
	"There will be a statement before the House rises at Christmas. I can say to the hon. Gentleman that that will be done."
	When Members on the Opposition Benches shouted out in disbelief, the Prime Minister said:
	"There will be a statement before the House rises this Christmas."—[ Official Report, 3 December 2008; Vol. 485, c. 38.]
	Indeed, that was followed up by a letter from the Economic Secretary to my hon. Friends the Members for Fareham (Mr. Hoban) and for Macclesfield (Sir Nicholas Winterton), saying that the Government would give their considered response to the ombudsman's report to the House shortly, and—in the Economic Secretary's own handwriting—"before the recess".
	Those were the promises made to Parliament—to Members of the House—yet now it seems that the promises are to be broken. Having waited months for the Government reply—indeed, they have had a draft report for well over a year—desperate policyholders will have to wait even longer. As the Public Administration Committee put it in a report today:
	"Justice further delayed will mean justice denied to even more people."
	Equitable Life policyholders have suffered enough: raising hopes and then dashing them before Christmas is a shabby way to treat people. It is time the Government said sorry and accepted the ombudsman's report. I suspect that the Chancellor will not do so today, but I am sure that he will be forced to in due course.
	Instead, we must focus our attention on the deepening recession into which the Government have led us, and what better place to start than by reminding the House what the Chancellor told us in the debate on the Queen's Speech a year ago? That debate was held many months after the August seizure of the credit markets. It took place long after the Chancellor had discovered from reading his  Financial Times that a credit crunch was happening. It was after the Northern Rock run and after warnings had come thick and fast about the downturn that lay ahead; in other words, when the Chancellor rose to speak in this debate a year ago there was absolutely no excuse for his not facing up to the economic realities, preparing the country for a forthcoming recession and readying the House for the difficult decisions that lay ahead. However, instead he told us that Britain
	"will grow the fastest of all the developed countries. Inflation is around target...The foundation for all those things is a strong and stable economy...That is why, as I have said time and again, we shall take no risks with stability."
	Britain was to grow faster than any other country and inflation was to be on target—it just shows what a complete fantasy world the Treasury was living in.
	To be fair to the Chancellor, he gave us the following warning, which turned out to be nothing short of prescient:
	"What risks stability is getting into a position of making promises that cannot be afforded. That will result either in increased taxes elsewhere or, more likely, increased borrowing, which puts pressure on interest rates. That is the last thing we need, especially at this time of international uncertainty."—[ Official Report, 14 November 2007; Vol. 467, c. 701.]
	A year ago, he said that increased borrowing was the "last thing we need", but it is the very first thing he proposed in the face of the recession.
	How did the Government move from the position a year ago, when the Chancellor boasted that he would take no risks with stability, and predicted that Britain's economy would grow the fastest of all developed economies, to today's position? Now, the prediction from almost every international body is that Britain's economy will contract the furthest of all developed countries in the world, and the Chancellor is taking enormous risks with stability—risks that mean increased taxes, increased borrowing, and pressure on long-term interest rates, as he warned us a year ago.
	The Government's answer is that it is all America's fault. That has become a kind of mantra for the Government, like something in a panto; I know that the Chancellor has been spending time with panto characters. The Government blame sub-prime, Lehman Brothers, AIG and all that. Of course, all those things help to explain why all countries are facing tough economic circumstances; the Chancellor says that that is right. However, they do not explain why the slow-down is forecast to be worse in Britain than in any other major economy. They do not explain why the European Commission, the International Monetary Fund and the Organisation for Economic Co-operation and Development predict that Britain will have one of the steepest recessions and one of the sharpest rises in unemployment. For a decade, when the Prime Minister was Chancellor, he took personal credit for the fact that, as he modestly put it, Britain was doing better than anyone else. Now, he refuses to accept any personal responsibility for the fact that, as the world sees it, Britain is set to do worse than anyone else. That will not do.
	Eleven years ago, the Prime Minister inherited a strong economy from the predecessor Government. Now, once again, Britain is on the path to being the sick man of Europe. Labour has done it again. The blame for that lies fairly and squarely with him. The truth about the Prime Minister's record is that during all his years at the Treasury, he became so convinced of his own propaganda about abolishing boom and bust that he mistook a finance and housing boom for stability, and never prepared Britain for the bust.
	The Prime Minister talked of prudence endlessly from the Dispatch Box, but ran up a huge structural budget deficit. He pledged that he would be the iron Chancellor, but let spending rip. He went on and on about the long term while wrecking our pension system. He preached a kind of Presbyterian morality, yet presided over an age of excess and irresponsibility. He created a regulatory system that allowed the biggest financial crisis of our lifetime to develop entirely unnoticed. Indeed, last week he pleaded to a newspaper that he did not know what was actually happening behind the scenes.
	When the credit markets froze last year, the Prime Minister froze, too. The Government were paralysed by indecision, because, as ever, he did not want to do anything that might lead him to admit that he could, in some way, be held to blame. The Budget came and went without anyone noticing, except the poor motorists, who were to be hit by higher taxes. Just days before his own party decapitated him, the drama of the collapse of Lehman Brothers and Washington Mutual threw the Prime Minister a lifeline and enabled him briefly to seize the international limelight with the recapitalisation plan that the Bank of England had drawn up.
	Ever since then, the Prime Minister has been scrabbling around for other things to announce—on housing, on VAT, on almost anything—regardless of whether the measures would work, regardless of the absence of any detailed policy, regardless of the cost or the impact on national debt, regardless of the burden placed on future generations, and regardless of the damage done to Britain's international credibility or creditworthiness. The attitude is, "It doesn't matter whether it is the right or wrong thing to do, just so long as it can be spun as something rather than nothing." That is what the last few weeks have been all about—the short-term political plans of the Prime Minister, not the long-term economic interests of this country.
	That is why Britain is where it is today—badly prepared for the recession, and badly led now that the recession is upon us. It is not just that the Prime Minister failed to fix the roof when the sun was shining.  [ Interruption. ] I will say it again: it is not just that the Prime Minister failed to fix the roof when the sun was shining—his plan for the recession is now failing. Britain has been in recession since July—almost half a year—and at some point the country will ask whether all the promise of action has actually delivered. There is no evidence that the bank recapitalisation has got credit flowing again to businesses; no evidence that the stamp duty holiday has persuaded a single person to buy a house; no evidence that the £12 billion temporary VAT cut has made the slightest difference to the confidence of a single consumer.

Frank Field: I am following the hon. Gentleman's argument carefully. He has noted the importance of getting credit out to businesses, so that they can open again after Christmas. One obvious way of doing so is to use the two nationalised banks, and perhaps the moneys that we are putting up, to cut VAT. On Wednesday, we have a chance to vote on the VAT reduction—will the hon. Gentleman seek ways to vote against it, so that Government Members who would like the money to be spent in other ways will similarly be able to vote?

George Osborne: If I needed persuading before that intervention, I am totally persuaded now. We plan to vote against the VAT reduction, which has already come into effect. Because of the procedures of the House, the Government did not allow us to have a vote before it did so. Our argument, made over many weeks and against quite a lot of criticism, not just from Ministers but from various economic commentators and so on, was that we were standing in the way of a fiscal boost that would deliver a transformative effect on the British economy. There is an independent survey—the first, I suspect, of quite a few—out today that shows that there is absolutely no evidence that that measure has had any impact whatsoever on consumer confidence.

Frank Field: May I push the hon. Gentleman further on that? Members on both sides of the House will be desperately worried about how the unemployment figures out on Wednesday or Thursday will begin to affect their constituencies, and what the level of unemployment will be after Christmas. The one thing that we could do to mitigate those redundancies would be to ensure that firms, which will prosper only if the banks deliver credit to them, received credit. The banks are clearly not going to do that, so we should use the moneys from VAT to go through the two nationalised banks so that firms can get credit and open again after Christmas.

George Osborne: The right hon. Gentleman makes a compelling case, with which I agree, about the need to get credit flowing from the banks to businesses. That is essential if we are to keep small and medium-sized businesses in particular, but also larger businesses, afloat. That is the single most pressing problem facing the Government. I disagree with him about the method: I think that a different approach is needed, and I shall discuss it in detail— [ Interruption. ] The hon. Member for Bishop Auckland (Helen Goodman) giggles, but I think that the Chancellor is about to copy something akin to what the right hon. Gentleman or I have announced about a loan guarantee scheme, so perhaps she will have to swallow her giggles. However, I certainly agree that we need to do something about the problem. I would introduce a loan guarantee scheme similar to the inter-bank scheme that is now in place, with the Government underwriting lending, and I shall come on to discuss that in more detail.

Tobias Ellwood: Supporting businesses is an aim shared by Members in all parts of the House. The Government have borrowed £37 billion of taxpayers' money and given it to the banks, but they have set an interest rate to the banks of 12 per cent. They then expect the banks to lend to small businesses at a rate of about 3 per cent. The banks cannot be pulled both ways: that is why money is getting stuck, and it is why small and medium-sized businesses are not receiving the support that they need from the Government.

George Osborne: My hon. Friend makes an excellent point. Again, I shall come on to discuss recapitalisation. I certainly think that the Chancellor needs to revisit the terms of recapitalisation, as the 12 per cent. charge is too high, if one considers the coupon bond charged in the United States, Germany, France and other countries. That is one reason why our banking system has the problems that it does.

Rob Marris: Will the hon. Gentleman give way?

George Osborne: I always enjoy giving way to the hon. Gentleman.

Rob Marris: I am grateful to the hon. Gentleman. He is always gracious to me. I understand that he and his party are concerned about fiscal stimulus. As their amendment states, they want
	"a low debt and low tax economy".
	To me and many of my constituents, that suggests that there would be considerable cuts in public expenditure. That is a coherent political position, but my constituents deserve to know what cuts the hon. Gentleman and his party propose to make to public expenditure.

George Osborne: Let me say two things to the hon. Gentleman. First, according to the Institute for Fiscal Studies, if we use the same methodology as the Labour party used against us at the last election—as, indeed, the Chancellor used—the thing that Labour Members all cheered a couple of weeks ago amounted to a £37 billion cut in public expenditure, so no one will ever believe anything they say again about spending cuts. Secondly, when it comes to specific Departments— [Interruption.] Treasury Ministers say, "Answer the question." They probably do not know the answer to this question, so I have some sympathy with them.
	As I understand it, the Chancellor has announced that he would take £5 billion in efficiency savings from Government Departments from 2010 onwards. There is absolutely no indication from the Government which Departments that will come from. They cannot tell us what the total spending will be on health, defence, schools or anything else, so it is a little unreasonable of the hon. Member for Wolverhampton, South-West (Rob Marris) to ask me what my health spending would be as opposed to the Labour party's, when we do not even know what the Labour party's plans are because they came up with the £5 billion figure and have not filled in the details yet. Once again, further evidence that everything they say on spending is total nonsense.

Stewart Hosie: Before the shadow Chancellor moves on from VAT, may I point to him that it is £12.5 billion of real money in the real economy—about 1 per cent. of GDP? Would he have been more satisfied if the Government had been straight and said that business would keep that to see themselves through the recession, rather than pretending that it would be passed on to consumers?

George Osborne: I know one business that kept some of the VAT for itself—the Labour party, whose own shop did not pass on all the VAT cuts. Some businesses made use of the potential secret fiscal stimulus.

Rob Marris: rose—

George Osborne: I shall make a little more progress and perhaps give way to the hon. Gentleman later.
	I was speaking about the lack of evidence that the stamp duty holiday, the VAT cut and so on had made the slightest difference. There is plenty of evidence that the prospect of a trillion pound national debt and the tax bombshell to pay for it is undermining national confidence in the future, and that makes the recession worse today. We will begin to see proof of whether the Prime Minister's tax and borrow recession plan is working when we see the unemployment figures later this week, and particularly when we see the unemployment figures in January and February, by which time the Government will have been dealing with the recession for more than half a year.
	The Prime Minister has staked his claim to office on the performance of the economy. Let him, then, be judged by it, just as we are prepared to be judged by the positive action that we now urge on the Chancellor—action that really would help reduce the length of the recession and instil the confidence that we need for a future recovery. That action begins, as my hon. Friend the Member for Bournemouth, East (Mr. Ellwood) said, by addressing the problems in our credit markets, for this is a credit crunch, and until we address the lack of credit, the Government are only scratching at the surface of the deep problems that we face.
	The problem for the Government, and particularly for the Prime Minister, is that it requires an admission that he does not want to make. That admission is that the bank recapitalisation may have rescued the banks back in September and October, but it has not rescued the wider economy. There remains an acute shortage of credit. An over-leveraged economy is de-leveraging— [Interruption.] The Chief Secretary to the Treasury, who survived the fire that was taking place behind her on the Andrew Marr programme yesterday, is obviously very excited by the incident and is gabbling away. If she wants to make an intervention, she is more than welcome to do so—

Yvette Cooper: rose—

George Osborne: —and while she is up, I want to know what happened to the Equitable Life statement.

Yvette Cooper: Perhaps the hon. Gentleman will tell the House whether he supports the £60 for every pensioner, to be paid in the new year; that will be paid for through £900 million of borrowing.

George Osborne: I notice that, again, there was not a word on Equitable Life; perhaps the Chancellor will deal with that issue. In a recession, of course we want to be getting money to the front line. I think that the money for things such as the pensioner bonus could have come from within Government.

Yvette Cooper: From where?

George Osborne: By the Chief Secretary's own admission, there are billions of pounds of efficiency savings to be made. We have said that the £12 billion VAT cut was a waste of money. If, when he responds, the Chancellor of the Exchequer can provide any evidence that that cut is having a significant impact on consumer confidence, or changing the spending patterns of British people in the run-up to Christmas, I will be delighted to hear it. So far, we have seen absolutely none.

Rob Marris: rose—

Mary Creagh: rose—

George Osborne: I give way to the hon. Lady.

Mary Creagh: What would the hon. Gentleman say to the right hon. and learned Member for Rushcliffe (Mr. Clarke), who spoke in support of the VAT cut on Sky News yesterday? He said that the best fiscal stimulus was a VAT cut, and that such a cut gives a little boost to consumer demand and stops us hitting the bottom too hard. Is this another split in the Tory party?

George Osborne: With the greatest respect to the hon. Lady, I should say that I think that she is reading the planted Whips' note from three weeks ago. It has not been updated to take account of the fact that my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) has made it very clear that, given the scale of Government borrowing, this could not be afforded. He said that in the House and on many occasions. I apologise, but if that was a Whips' note issued yesterday, the Labour party needs a new set of Whips as well as a new set of notes.

Andrew Pelling: On the hon. Gentleman's plans for recapitalisation and repairing the banks, why has the Conservative party set its mind and not made any positive comments about the use of what might be described as the "bad bank" solution—that is, taking bad debts off the banks' balance sheets so that they feel more confident about lending to each other? Has that been a consideration in policy making within the hon. Gentleman's party?

George Osborne: We are looking at all the options. The idea of a bad bank is at least worth considering, although the problems that the troubled assets relief programme, or TARP, encountered in the United States make it clear that that route is not easy. However, as I am sure the hon. Gentleman is aware, because of his knowledge in this area, there is plenty of speculation that this may not be the end of the story of bank recapitalisation when it comes to rescuing the banks. We may need some further form of recapitalisation. That might take the form of injections of share equity, as we have seen, or something else, such as a TARP scheme for the United Kingdom. It is not sensible to rule any of those options out, but if we look at the problems with the Paulson plan—or the Paulson-Geithner plan; we will see what Mr. Geithner does in office—we see that there may be other, better routes to pursue.
	Another aspect of bank recapitalisation was raised by my hon. Friend the Member for Bournemouth, East. As I said, there remains an acute shortage of credit. An over-leveraged economy is de-leveraging at an alarming rate, and money is being withdrawn from our economy—withdrawn because those who used to fund loans from the wholesale markets cannot get that wholesale funding; withdrawn as US money market funds and other international investors pull back from the UK because they can see the truth about our economic prospects; and withdrawn as recapitalised banks use what resources they have to pay the Government's coupon or buy out the Government's stake as quickly as possible, instead of using the resources to lend out to business.
	The fact is that the 12 per cent. rate that we are charging the banks is too high; it is more than twice the rate that the American Government are charging and half as high again as the rate that the Germans and French are demanding. Instead of summoning the bank chiefs to endless summits and briefing the press in advance about the ticking-off that they are going to get, the Chancellor would surely spend his time better looking at exactly what he is asking the banks to do. He wants them to pay the Government coupon, repay the preference shares, rebuild their balance sheets, lend more money in a deteriorating economy and pass on rate cuts to borrowers while protecting rates for savers—no wonder that last week the Council of Mortgage Lenders took what for it was the pretty extraordinary step of issuing a press statement:
	"Current policy objectives are conflicting and incoherent...The tug of war with lenders being pulled in every direction at once needs to end."
	The Treasury and the Prime Minister need to go back and negotiate a different deal with the banks, cut preference share rates, and cut the costs of the inter-bank guarantees, as the Dutch have done. If that requires them to swallow some pride, they should swallow a bit more and introduce, alongside the recapitalisation deal, the Conservatives' national loan guarantee scheme, for which we have been calling for over a month.
	Earlier, in his statement on the European Council, the Prime Minister said that the Chancellor is about to announce a lending scheme of some sort. We will wait to hear what he has to say about that. I hope that he follows our lead and the model that we have set out, which has been discussed with and approved by many business organisations and individual businesses. We need the Government to underwrite, for a fee, lending from the banks to businesses in the same way as they are underwriting lending from one bank to another. That is the only way to ensure that sound firms get their overdrafts extended and their loan facilities renewed. It will not be enough merely again to back up securitisation in the international markets.
	I would argue that directly guaranteeing lending is the only way to restart the credit insurance that, for example, underpins the supply chain, the absence of which contributed to the sad demise of Woolworths. Everyone knows that that is required. The CBI, the Federation of Small Businesses and the British Chambers of Commerce all support a version of the Conservatives' national loan guarantee scheme, and it needs to be introduced now. The Chancellor of the Exchequer, who has a long and distinguished history of copying the ideas that we propose from this Dispatch Box, is more than welcome to copy this one. If he does, it is of course an admission that the Government are looking to the Conservative party for solutions to the Labour party's recession.

John Baron: To substantiate what my hon. Friend is saying about our proposals for a loan guarantee scheme, is he aware of further evidence—if that is required—from a new survey by Essex chamber of commerce showing that a quarter of all businesses have found that their banking terms and conditions have deteriorated markedly in recent weeks courtesy of the banks' tightening of conditions? There is clear evidence that credit flows are not working and small businesses are suffering, and the Bank needs to stop talking, get on its bike and start acting to get some fresh proposals.

George Osborne: I agree with my hon. Friend, and I would be delighted to read the survey from Essex chamber of commerce. He makes a good point. There are all sorts of ways in which credit is being withdrawn from businesses. In some cases it is simply refused, in others a very high interest rate is being charged, and in others a very high arrangement fee is being charged. This credit famine is manifesting itself in several different ways. There are other ways in which the Government can help businesses that are struggling to stay afloat and to keep people in work, which I entirely agree with the right hon. Member for Birkenhead (Mr. Field) is the key priority for the Government. They could allow businesses to defer their VAT and tax bills, cut national insurance costs for the smallest employers, or provide a chapter 11-style breathing space so that problems can be worked out before the liquidators are sent in.

Greg Hands: Will my hon. Friend give way?

George Osborne: I will certainly give way to my hon. Friend, who has excellent connections with the German Christian Democrats.

Greg Hands: I thank my hon. Friend for giving way, although this is not a question about Germany. One of the sectors that have been particularly badly affected by the credit crunch is that of housing associations building social housing, which are being offered terms by banks whereby they will get new loans only if they renegotiate the terms of their existing loans to give them higher interest rates. Does he agree that one of the worst effects of the inability to get banks lending falls on people in our society who desperately need new houses and proper Government financing to be delivered for those homes now?

George Osborne: I absolutely agree with my hon. Friend that that is another example of how the credit problems in the economy are affecting all sorts of different sectors. One of the Prime Minister's great boasts was that he was going to build 3 million homes, but house building has virtually ground to a halt. That is due not only to the lack of a market for homes to be sold to the private sector but to the lack of credit for social landlords and the like. That is further evidence of why we need to address the credit problems.

Rob Marris: Will the hon. Gentleman give way?

Andrew Pelling: Will the hon. Gentleman give way?

George Osborne: I have given way to both hon. Members, and as many Members wish to speak in this debate I shall make a little more progress.
	The Government can do other things to help businesses, all of which would keep people in work over the coming months, which must be the priority. With a freeze on council tax, which I am delighted to say many Conservative-controlled councils are trying to bring about anyway, and which a Conservative Government would help them to bring about, we can bring rising household bills down and give greater confidence in the future.
	That greater confidence has to be the priority. We have to rebuild confidence in Britain's ability to pay its way in the world. People need to know that we can bring public spending under control and get government to live within its means. Our independent office for budget responsibility will tell the country the truth about this country's liabilities, including the liabilities for the 10 years of dodgy PFI deals that they all signed up to.

Rob Marris: Will the hon. Gentleman give way?

George Osborne: I will certainly give way on the point about PFI.

Rob Marris: On the point of control of Government expenditure, the hon. Gentleman is making a thoughtful speech—he is more thoughtful today than he is often, and I salute him for that—and I understand that in the medium term he cannot tell what will happen to the economy, as none of us can. However, perhaps he could tell us, without contrasting it with the spending of the Labour Government, what the position of his party is in the medium term on the percentage of gross domestic product that a Conservative Government would spend each year?

George Osborne: Since we are in a recession of unknown length, and the hon. Gentleman cannot tell me what gross domestic product will be even in a year's time, let alone in three or four years' time, how can I be expected to offer a percentage of that as what a Conservative Government would spend? I do not believe in setting figures as a percentage of national income for public expenditure; I believe in public expenditure that is affordable for the Government given the prevailing economic circumstances and the demands of the public sector, and that is what I will do.

Andrew Pelling: It is generous of the hon. Gentleman to give way to me a second time. He has shown that he is determined to use realistic policies to bring the economy out of trouble, but one of the problems for the banks is that they are so shocked by the losses that they have incurred, they are unwilling to risk any further losses. Would his loan guarantee scheme provide protection for the banks' initial losses? It is only by following that route that the scheme will be successful.

George Osborne: The way in which we envisage the scheme working is that the losses will be shared pari passu. It would greatly reduce the risks to which the banks are exposed, but to remove all risks for the banks could lead to some considerable distortion in the operation of such a scheme. It is right, by the way, to use the banks' ability to assess credit risk in businesses, and the network that they have.

Christopher Huhne: rose—

George Osborne: Let me give way one more time to the hon. Gentleman. He is hovering because he sees a potential opportunity opening up in the next few months and I want to give him every possible platform.

Christopher Huhne: I would like some clarification of the hon. Gentleman's fiscal policy. Is he still committed to the full use of the automatic stabilisers, and, if so, does he accept that the vast majority of the projected increase in Government debt will come about through the use of a fiscal policy that relies on the automatic stabilisers?

George Osborne: As my right hon. Friend the Leader of the Opposition, I and many other Conservatives have said, we are committed to the use of the automatic stabilisers, as the Conservatives were when in government in the early 1990s. There are several components of national debt. There is the element of the automatic stabilisers, of course, but there are other elements, too. The Government took a large structural deficit out of the boom years, almost alone among the advanced economies, into a bust at about 3 or 4 per cent. of national income. That is an absolute scandal. They had the biggest boom of almost any economy because of the size of financial services and the property industry, but still managed to run a large deficit. That is part of the problem. There may be a new form of structural deficit caused by their over-reliance on tax receipts from the City and property—when those may return we do not know. There is the element of the automatic stabilisers, and then there is the additional discretionary element, such as the VAT reduction. We took a decision on that, and I think the Liberal Democrats will also vote against the VAT cut later in the week. Both parties agree that that is not the best use of Government money.

Adrian Bailey: Will the hon. Gentleman give way?

George Osborne: With respect to the hon. Gentleman, I have given way a number of times, so I shall make a bit more progress.
	As I was saying, our independent office for budget responsibility will tell the country the truth about things such as the components of national debt. There is an alternative to the generation of higher taxes that we have had under Labour. This matter is not just about future recovery, but the current recession. The public are not fools. They can see the bills that they will pay for Labour's failure, and they fear Labour's increase in national insurance on the incomes of everyone earning more than £20,000, which is a tax on the incomes and jobs of middle Britain. The public fear the Labour Government's plans for a permanently higher VAT rate, which the Treasury so helpfully leaked to us. They fear Labour's lack of credit; they fear the rise in unemployment under Labour, and they can see what is coming down the track.
	A survey from the Bank of England today showed that that lack of confidence in the future is holding many families back from spending today. Britain needs a Government who can inspire confidence in the future and in employing people without the fear of higher employment taxes. Britain needs a Government who will inspire the confidence needed to buy a house without fear of further measures that might damage the housing market, and who will enable people to plan for their family's future without the threat of having a generation weighed down by national debt. That confidence is not coming from this tired and failed Government, who have brought about the greatest failure in economic policy for a generation and given Britain the prospect of the worst recession in the industrial world. By their own admission today, this is the deepest recession we have ever known. The Government are failing to offer any confidence of recovery: they have had their chance and the British people should have the chance to get rid of them.

Alistair Darling: Yet again, the shadow Chancellor was pretty thin on what he would do in the face of the global downturn with which we are faced, but I will return to that matter shortly.
	I welcome the fact that the hon. Gentleman has again promised support from his party for the Banking Bill, which is essential as we continue to deal with the fallout from the credit crunch. I hope that the Conservatives now regret that they opposed the Bill to nationalise Northern Rock in February last year, without which it would not have been possible to deal with the problems at Bradford & Bingley during September, in the summer recess.
	The proposals in the Queen's Speech for welfare reform will also be extremely important. At a time like this, when people are likely to lose their jobs, it is important to do everything that we possibly can to help such people get back into work. My right hon. Friend the Secretary of State for Work and Pensions will discuss that when he speaks to the House at the conclusion of this debate.
	There are also measures to continue to build a fairer society, to help victims of crime, to tackle discrimination and to help with training and apprenticeships, and further NHS reforms, all of which have been debated during the past few days. I also welcome the shadow Chancellor's welcome for legislation to ensure that the Government meet the obligation to eradicate child poverty. Let me just say this: a commitment to eradicating child poverty is important, but so too is a commitment to producing the means to enable us to do that. I do not think that a future Conservative Government could provide such a commitment.
	Next year, we will, of course, continue to work with other countries to tackle climate change, as the Prime Minister made clear earlier, and we welcome the agreement reached by the European Union leaders last week. The Climate Change Act 2008, which imposes a legally binding obligation on British Governments, is important and shows that we can set an example to other parts of the world. That is yet another example of how we work with other countries to deal with international problems. Of course, we continue to work with other countries to deal with the problems that have arisen as a result of the credit crunch, which affect every single developed country and other countries.
	That is why it is important that we continue to work with other countries as we hold the presidency of the G20 next year. We have an opportunity not only to address some of the problems of the past that have helped to cause the problems we now face, but to ensure that we reduce the likelihood of such events happening again and, crucially, that Governments across the world act together now to reduce the impact of a recession and help our economies get through this downturn as quickly as possible.

Adam Afriyie: The Chancellor is talking about international co-operation and the international context. The European Commission and the International Monetary Fund have both said that the UK recession will be deeper than that of any other developed country. Does he agree with that and if so, why?

Alistair Darling: We are going to be affected more substantially in relation to the loss of revenues that we are now experiencing because of the lack of profitability in the financial services sector. London is the major financial services sector of the world—something that was welcomed in all parts of the House. Of course we are likely to be more severely affected as a result of profitability being reduced, and I have made that point on many different occasions in the House. We are also affected by the downturn in the housing market, because of the reduced revenues from stamp duty.
	Of course we are being affected, but the other point is that there is not a country in the world that is not being affected, whether it be America, in the eurozone, China, India or in south America. This truly is a global problem. The only person in the House who does not want to recognise that is the shadow Chancellor. The fact is that the problem started in America, as the Americans themselves admit.

Several hon. Members: rose —

Alistair Darling: Opposition Members have to accept that even the Americans admit that the problem started in America.

Alistair Burt: But we are trying to make a keen distinction. Was the Minister for the Olympics right today to recognise that the recession is deeper than any that we have previously known? Notwithstanding the fact that all countries face a problem, why does she think that the recession here is going to be deeper than any that we have previously known, which therefore means that we were less prepared than anyone else?

Alistair Darling: What I know is that my right hon. Friend the Minister, like everyone on the Labour Benches, supports the measures to ensure not only that we tackle the causes of the recession, but that we help people and businesses through this difficult time. That is the difference between the two major political parties at the moment.

Brian Binley: Will the Chancellor give way?

Alistair Darling: No.
	We are prepared to take action to help people and businesses; the Conservative party has made it clear that it is not and that it would not be able to produce the means to help people through this time. That is the big difference between us.

George Osborne: I am grateful to the Chancellor for giving way. My hon. Friend the Member for North-East Bedfordshire (Alistair Burt) asked a very specific question. The Minister for the Olympics, who attends Cabinet, said today that Britain was
	"facing a recession deeper than any that we have known".
	Does the Chancellor agree with his colleague?

Alistair Darling: I have made it very clear that we, along with every other developed country the world over, face a huge challenge because of the current economic downturn, the like of which we have not seen in generations. I have been saying that for months. Indeed, the hon. Gentleman may remember that in the summer, when we were both pursuing our aquatic summer holidays in our own way, I encountered a degree of turbulence when I said what I said, but I meant it, because we faced—as we all know we still do—severe problems right across the world, because of what is happening in every corner of the world.

Philip Dunne: rose—

Andrew Tyrie: rose—

Brian Binley: rose—

Alistair Darling: I shall make some progress and perhaps give way later.
	It is pretty clear that the difference between the two sides in the House is that the Government are prepared to take action to help people, whereas the Conservative party is not. What we are also seeing is the massive contradictions in the Conservative party's approach. The Conservatives are not leading the debate; they are simply following it. Even today, I noticed that the Leader of the Opposition gave a speech in which he called for more regulation of the financial services industry. I agree that we need to strengthen the supervision and regulation of the financial services industry. However, I also came across what the shadow Chancellor said in April 2006:
	"Regulation ... inhibits enterprise. For example, speak to any business in financial services—from the largest investment bank to smallest independent financial adviser—and the threat of future regulation from Whitehall and Brussels is now their number one concern."
	Well, it is not their No. 1 concern today.
	Most people recognise that the regulatory system needs to be strengthened. However, just at the time that the problems in the sub-prime market in the United States were starting to emerge, the shadow Chancellor told the Tory party conference, in October last year, that the report from the right hon. Member for Wokingham (Mr. Redwood), who had been commissioned to advise those on the Conservative Front Bench on these matters,
	"sets out how we liberate our economy to compete with the likes of India and China ... cut Government regulation, planning restrictions and red tape".
	What was in that report? Under the heading of "Mortgage regulation", it stated:
	"We see no need to continue to regulate the provision of mortgage finance, as it is the lending institutions rather than the client taking the risk".
	Well, do we not know that that is the case, when we look at what has happened?
	Today, the Conservatives try to tell us that, during the past 10 years, it was they who were calling for tighter regulation all along, yet they were the party of self-regulation in the 1980s and the 1990s. We were the Government who introduced the Financial Services Authority, bringing together a disparate range of regulators, and we are also the party that will bring forward proposals to help to strengthen the system of supervision and regulation.

Andrew Pelling: That might be effective criticism of the Conservatives for the purpose of putting out leaflets, but surely the problem is that the huge powers of regulation that the Government gave to the FSA have proved entirely ineffective. Regulation did not work; it regulated the wrong things and ignored the huge leverage that was taking place in the financial markets. We should have had focused regulation to prevent this disaster from taking place.

Alistair Darling: As I said a few moments ago, there are obviously lessons to be learned from what has happened, not just here but in the United States, in Europe and right across the world. All of us need to learn lessons from what has happened. The other people who need to learn lessons are those sitting in the boardrooms of the banks, who should have asked themselves whether they really understood the risks to which they had allowed their institutions to become exposed.

Stewart Hosie: I am following the Chancellor's argument on regulation, but given that regulatory failure was beginning to be understood in the summer of 2007, why did he say in his pre-Budget report speech that, while he was going to look at regulation and supervision, he would not have proposals put before him until spring 2009? Why have this interminable delay in doing the right thing?

Alistair Darling: Legislation aimed at strengthening the supervision and regulation of the banks is already going through the House. I am sure that the hon. Gentleman is aware of it—or perhaps not—but it is also clear that we will have to take further action. That is why I have said that we need to make further proposals to strengthen the system of supervision and regulation.
	I thought that the hon. Gentleman was perhaps going to raise a slightly different point. Sadly, there are two examples in Scotland of banks that should have realised the risks to which they were becoming exposed, and perhaps taken different decisions that would have produced a different result from the one that we now see. Fortunately, we have been able to intervene, but I have to say to him yet again that the Scottish economy would not have been able to support the degree of intervention that the UK Government were able to bring to bear in order to help the RBS and HBOS. It simply would not have been able to do it— [ Interruption. ] The hon. Gentleman can discuss this for ever and a day, but it will not alter the fact that the strength of the United Kingdom greatly benefits Scotland.

Stewart Hosie: rose—

Alistair Darling: Yes, as I have insulted the hon. Gentleman, I will certainly give way to him.

Stewart Hosie: The strength of the United Kingdom is in the borrowing of £1 trillion in order to fund some of the proposals that the Chancellor is now talking about. That is not about the intrinsic strength of the United Kingdom. Does he agree that HBOS and the RBS were almost brought to their knees by the failure of this Government to take decisive action in the way that the Irish did when they guaranteed all deposits? The Irish have seen no runs on any of their banks, and no bank losses.

Alistair Darling: That is patent nonsense. I do not think that many people would agree with the hon. Gentleman.
	As I was saying, since September we have clearly seen a deterioration of the situation in relation to the banking sector. That was, perhaps, typified when the United States bank Lehman Brothers finally collapsed. Indeed, since March every single Wall street investment bank has collapsed, merged or had to change its business mode, such is the scale of the problems that we face. More than $30 trillion has been wiped off the value of share prices across the world this year: that is twice the size of the United Kingdom economy.
	Here, we recapitalised the banks in October. We also introduced a credit guarantee scheme to guarantee new lending between banks. Earlier this year, through the special liquidity scheme, we ensured that banks had sufficient liquidity. Up to £200 billion was guaranteed. Those steps were absolutely necessary to prevent the collapse of banks in this country. Since the schemes were introduced, no United Kingdom bank has failed, and not one saver in a British bank has lost out. The £50 billion of new capital, both public and private, will be taken up by the eight major banks and building societies, and the measures that we have introduced to maintain financial stability at home have been widely copied throughout the world. Those measures were essential to maintain the stability of the banking system, and they have helped to ensure that banks are beginning to extend lending. A great deal more needs to be done, but to assert that what we have done has made no difference whatsoever is quite simply wrong.

Andrew Tyrie: Surely the Chancellor can at least see that the bank recapitalisation package has failed to restore lending to anything like normal levels, and that the main reason—or a major reason—for that is the terms of the preference stock, at 12 per cent. Does he accept that it is now essential for the Government to present a revised set of proposals, even if that means eating humble pie, to get the banking sector working again? Without such proposals, we shall be stuck with very little lending.

Alistair Darling: As a country moves into a downturn, it is not surprising that that affects the level of lending, and also affects the view that banks might take—

Andrew Tyrie: You have told the banks to return to 2007 levels.

Alistair Darling: The hon. Gentleman refers to the 2007 levels of lending, which both the RBS group and the Lloyds-HBOS group must maintain. That is part of the agreement. We also want to ensure that other banks extend their lending. The RBS has promised not to increase overdraft prices for small and medium-sized enterprises. Lloyds has agreed to pass on its rate cuts to its SME borrowers. HSBC has announced substantial increases in borrowing for both home owners and small businesses. Today, Barclays has indicated that it will increase the amount of credit available to the small and medium-sized sector by £1.5 billion. What we are doing is having an effect, but clearly a lot more needs to be done.
	I can tell those who said that the credit guarantee scheme would not work that we expect some £100 billion of guaranteed credit to have been issued by the banks and building societies by the end of this year. The take-up is as strong as we expected. Moreover, the rate at which banks lend to each other and which drives the rate at which they charge their customers—LIBOR—is down by more than 3 per cent., and the cost of insuring against bank failures, which is another measure of assessments made in relation to banks, is down by about 40 basis points for the RBS and HBOS. So what we are doing is having an effect.
	The hon. Member for Chichester (Mr. Tyrie) referred to preference shares, and mentioned a figure of 12 per cent. The House will no doubt remember that when I made my statement in October and set out what we proposed to do in relation to bank recapitalisation, many Members—particularly Conservatives—fell over themselves to demand that we extract a sufficient price from the banks to ensure a fair return for taxpayers. They were right, but the hon. Gentleman is confusing what was charged in relation to the preference shares—which was to ensure that we did not just lend money to the RBS or HBOS which would then pass straight to the shareholders without benefiting the strength of the bank as a whole—with the cost of actual borrowing, which, as I have said, is driven largely by inter-bank lending.

Tobias Ellwood: The Chancellor needs to explain why he set a coupon rate of 12 per cent. When we look at the American and German systems, we see that they have set an interest rate of just 5 per cent. Unless the Chancellor is willing to return here with another set of plans, I fear that it will not be long before he goes cap in hand to the International Monetary Fund, just as Denis Healey did a number of years ago.

Alistair Darling: The reason we imposed a charge was to ensure not only that the taxpayer got value for money, but that the money we put into the banks did not simply get passed straight through to the shareholders, which people would rightly have complained about. I made it clear last month that we would look at this scheme, and that we would do so before Christmas. The hon. Gentleman was slightly ahead of himself, because just over an hour ago we announced some changes to the credit guarantee scheme. We will lengthen the scheme from three to five years' maturity, lasting until April 2014. We will also widen the range of currencies in which banks can borrow the guarantee, and lower the fee used for the credit scheme while still keeping it on commercial terms.
	All these measures will continue to help to ensure that we get bank lending going again. It is difficult because, as the shadow Chancellor said, and as I said to the Select Committee last week, there is potentially a tension between the need to get banks to recapitalise and build up their strength and the need to encourage them to lend to the wider economy. None of these things would have been possible, however, if the Government had not been prepared to take action, and to ensure both that we made money available to strengthen and recapitalise the banks and that the banks had the funds so that they are available to the wider economy. As I said, many other countries across the world are now doing exactly the same thing.

Philip Dunne: On the Chancellor's recapitalisation plan, was he surprised that in the case of the Royal Bank of Scotland, for example, not a single external shareholder, as far as I am aware, chose to invest at that point, and therefore the Government have shouldered the entire burden of that recapitalisation? Was that his plan?

Alistair Darling: It is what we expected. It was obvious that in the conditions prevailing in October it would be highly unlikely that RBS would be able to raise money on the markets in the normal way. That is why we set up the scheme in the first place. Indeed, if we had thought it would be possible for all the banks to raise money on the markets in the normal way, we would not have had to introduce the scheme, so the answer to the hon. Gentleman's question is unequivocally yes, I was expecting it—and, indeed, I was absolutely right.

Stephen Dorrell: From what the Chancellor has said over the past two or three minutes, I am unclear about something: is he going to revisit the matter of the 12 per cent. coupon or not?

Alistair Darling: As I have said, I will keep all those things under review, because I want to ensure two things—that banks can lend because they have the funds and can lend into the wider economy, and that the taxpayer gets a return for what is a very substantial investment.
	As I said, the central difference between the Conservatives and the Government today is, as it has been for some considerable time, whether we should take further action over and above monetary policy—reductions in interest rates—in order to support the economy. Countries across the world—the United States, France, Italy, Spain, Japan, Korea, Australia, New Zealand and China—have signed up to putting more money into their economies to support them. The shadow Chancellor had some fun when he mentioned Germany in his speech, but the fact is that Germany, too, has already put in place a fiscal stimulus of almost the same size as our own. That demonstrates that countries all over the world are doing what we are doing: supporting their economy, supporting businesses and supporting people, because that is absolutely essential.
	People will ask themselves why the Conservative party seems so ready to repeat the mistakes it made in the 1980s and 1990s, when it did precious little to help an entire generation of people who were simply written off as the Conservatives sat back and let the recessions take their course.

Rob Marris: Does my right hon. Friend agree that it is a sad day for democracy when we have an official Opposition who are against fiscal stimulus and want a low-debt, low-tax economy, but who will not tell the electorate what they think UK Government spending should be in the medium term as a percentage of gross domestic product? Is this not a sleight of hand?

Alistair Darling: I was just going to come on to that point, because the shadow Chancellor made pretty heavy weather of trying to answer the question put by the hon. Member for Twickenham (Dr. Cable) about whether he supported the borrowing that arises as a result of the automatic stabilisers of the loss of revenues and the increased cost of benefit.
	Of course, in October the Leader of the Opposition said:
	"Borrowing goes up. That's inevitable and you have to allow that to happen."
	If he believes that, he has to accept the consequences—that is it necessary to meet the cost of that borrowing.

Stephen Dorrell: Will the right hon. Gentleman give way?

Alistair Darling: No, I want to make some progress; the right hon. Gentleman has just intervened.
	The Leader of the Opposition also said, in July, that what the Government ought to be doing is cutting taxes—that they should be giving a fiscal stimulus to the economy. If he still believes that those two things are right, how can he justify his position today, when we are doing precisely that? Indeed, in September, he also said:
	"The lightweight thing to do would be to make unrealistic promises about slashing Labour's spending"
	levels, and yet what happened just last week? The shadow Chancellor said that, whatever spending limits I announced, he was going to cut them further. Yet when he was asked on "Newsnight" on 9 December what he would do—he was asked on 19 separate occasions what cuts he would make, or what he would reduce—he could not, or would not, say. On 13 different occasions he was asked the same question, and he could not answer. Rather like the right hon. and learned Member for Folkestone and Hythe (Mr. Howard), who had that difficulty during the last general election, the shadow Chancellor could not say, or, more likely, would not say. Well, he may not be able to say today, but he will at some point before the next general election have to spell that out. If he really believes that he wants to cut public spending, especially at a time when the economy will still be suffering from some of the effects of the downturn, surely at some stage he is going to have to say where exactly he is going to get that money from.

Brian Binley: Has the Chancellor just given a hint of the date of the next election, or is he saying that his projection that the recession will come to an end by the third quarter of next year is wrong? Which is it? Will we have an election before that, or is the projection wrong?

Alistair Darling: What I am saying is that taking money out of the economy this year or next year is the wrong thing to do because it would be extremely damaging to people in this country, and that seems to be what the shadow Chancellor is signed up to.

Jim Cunningham: What I found very interesting during the shadow Chancellor's speech was the lack of an alternative. More importantly, he talked about decent housing, looking after families and so forth, but equally, he never said how he was going to do that. What we have had today is an absence of an alternative policy from the Opposition.

Alistair Darling: Indeed, and that is precisely the problem that the shadow Chancellor has. It was not that long ago, although it seems like light years away, that he was talking at this year's Tory party conference and promising more beds in the NHS, yet there was a funding shortfall of about £8 billion. He was calling for new school places; there was a funding shortfall there. He is still talking about cuts in inheritance tax, at a time when many people would think that there are other priorities that a Government might have, and there is a shortfall there of about £2 billion. He had a whole list of promises that he was making. Even on the loan scheme that he was outlining this afternoon, he does not have the money to pay for it, because he says that there would be no more money under his proposals. Yet somehow he offers the prospect of additional funding for companies and firms in this country.
	On looking at all the proposals made by the Leader of the Opposition at the start of this debate on the Loyal Address, we see that he is in no position to implement any of them, because he has made it clear that under the Conservatives, there would be no more support for the British people or for British companies. He is not in a position to make these promises, because he simply does not have the funds to pay for them.

Brooks Newmark: Can the Chancellor confirm that Labour will be doubling our national debt in just five years to more than £1 trillion, which is more than 80 per cent. of gross domestic product?

Alistair Darling: It is the case that debt and borrowing will rise. The shadow Chancellor was complaining about what we have done over the past 10 years. We reduced substantially the amount of debt that we inherited from the last Conservative Government, which meant that we are able to spend on front-line services. At the same time, we spent more on public services—on schools, hospitals, police, transport and housing. All those things needed more money after many years of underinvestment. We did increase public spending, but at the same time we reduced debt. Let us consider the position today. Despite all the things that we have had to do to support the economy, our debt will still be less than that of the United States, Japan and Italy. No one wants to be in a position where they have to borrow any more than they need to, and we want to keep debt at as low a level as possible, but to take money out of the economy now at a time like this, if that is what the hon. Member for Braintree (Mr. Newmark)—

Brooks Newmark: rose—

Alistair Darling: No, sit down. To argue that money should be taken out of the economy now would be completely ridiculous and irresponsible.

Brooks Newmark: rose—

Alistair Darling: As I used a slightly stronger tone than I am accustomed to using, I shall certainly give way to the hon. Gentleman again.

Brooks Newmark: I am simply asking the Chancellor to confirm that over five years he will be doubling debt to a sum figure of £1 trillion. Is the answer yes or no?

Alistair Darling: The debt is increasing, as I have said to the hon. Gentleman, just as debt doubled in the 1990s during the recession then. The difference is that because we were able to reduce debt substantially over the past 10 years, when we met the fiscal rules that we set, we have now been able to increase borrowing because it is the right thing to do to support people.

Michael Howard: rose—

Alistair Darling: The right hon. and learned Gentleman was not here —[Interruption.] I think I am right in saying that he was not here when I referred to him, but as he is here now, I shall certainly give way to him.

Michael Howard: I am most grateful to the Chancellor. I have come into the Chamber because he has just said that at the last election I was unable to identify the savings in Government expenditure that I was proposing. His memory is playing him entirely false. Does he not now accept that when I proposed £35 billion of savings in Government spending it was all set out in detail in the James report, in which he and his colleagues were entirely unable to pick a hole during the whole of that campaign—a figure that is almost identical to the savings now proposed by the Government?

Alistair Darling: I think that the electorate came to the view that we were able to pick rather a large hole in it. The right hon. and learned Gentleman was not here at the time, but I was referring to the fact that in the same way as the shadow Chancellor had an uncomfortable time on "Newsnight", I seem to remember that the right hon. and learned Gentleman had a very uncomfortable time, being unable to answer questions for some considerable time.

John McFall: rose—

Alistair Darling: I shall give way to my right hon. Friend and then I shall make some progress.

John McFall: I wonder whether the Chancellor can help me. By accepting the automatic stabilisers, the official Opposition have accepted that public debt will increase. Given that the Government's GDP fiscal deficit next year is to be 8 per cent., can the Chancellor confirm that 7 per cent. of that will result from the automatic stabilisers and that 1 per cent. will result from the fiscal stimulus, and so what the official Opposition are debating is the amount of money given to people to help them through this recession?

Alistair Darling: As I said to the House, the shadow Chancellor, having said that he accepts the need to allow the automatic stabilisers to rise, must accept the consequences of that. I think that we need to do more than that; we also need to put an additional fiscal stimulus of 1 per cent. into the economy. Of course a lot of our public spending is in the form of maintaining capital spending investment—it is at its highest level for about 30 years—which will make a big difference to our economy in the future, especially as we come through this.

Several hon. Members: rose —

Alistair Darling: I am going to make some progress. As I was saying, it is important at such a time that we take action to help people. We have reduced income tax for 22 million basic rate taxpayers—that will be worth £145 each from April next year—and I brought forward the payments being made in relation to child benefit and made additional payments for pensions. It is all very well for the Conservatives to say, "Yes, we welcome them," but they have to answer the second question, "How do you pay for them?" There is no point in making promises if they are not willing to produce the means to pay for them.
	In addition, we have brought forward capital spending, which will, among other things, help jobs in the construction industry. We have also introduced substantial measures to help businesses in relation to guarantees for loans for small firms, guarantees for small exporters, money from the European Investment Bank and measures to help businesses that are having difficulty with their taxes. Those are all measures that will make a substantial difference.

Christopher Huhne: I am grateful to the Chancellor for giving way, particularly on the point about the likely debt that will result from the fiscal stimulus. Is not this the first time in a recession that the Treasury has assumed that we will lose 4 per cent. of output for ever and that a large part of the debt resulting from the projections arises because we will not regain the previous trend? Is that designed to keep No. 10 in check? If not, why is it that the Chancellor has failed to persuade the Paris-based OECD of the same phenomenon? Its estimates of the structural deficit are substantially lower than his own.

Alistair Darling: The estimates that I set before the House reflect the fact that, as I said earlier, we have a large financial services sector here. It built up quite rapidly over the last decade and it is quite substantially affected by what has happened. It is sensible to proceed on the basis that the revenues we get in will be reduced and it will take time before the economy comes back. Anyone setting out their prospectus for how we ought to proceed over the next few years has to take account of those realities, just as they have to take account of the fact that we have to pay for the additional spending that will come from increased benefits and other expenditure resulting from the economy slowing down.

Stephen Dorrell: Will the Chancellor give way?

Alistair Darling: Not just now. The hon. Member for Eastleigh (Chris Huhne) is right, but if we are to ensure that we come through this with less pain—helping people and businesses—it is important that, in addition to supporting the economy in the normal way, we do more. That is the difference between us. I believe that we need to take action to help people and to help businesses. People expect their Government to do that at times like this. Indeed, it is only the strength of Government that can enable us to do it.
	Like every other country in the world, we face a difficult period. I am confident that we will get through it, and I am confident because we are taking the right action. We have low interest rates now, compared with the 15 or 17 per cent. interest rates that we saw in the 1990s and the 1980s— [Interruption.] Yes we did. Interest rates were sky high in the 1980s and 1990s, and this country paid a very high price for it.
	Next year, we will also see inflation coming down. We will benefit from the reduction in oil prices, which will pass through to what people pay at the pump. We want to see the benefit of that in relation to gas and electricity prices as well. We will get through this because we are taking the right action. We are prepared to support people. We are prepared to support businesses in this country. That is the difference between us. That is why I commend the Gracious Speech to the House.

Vincent Cable: I welcome the opportunity to return to some of the issues in an economic situation that is deteriorating rapidly, and is already significantly different from the environment that we discussed three weeks ago in relation to the pre-Budget report.
	Before I move on to deal with the big economic issues, I want to say a little about one aspect of pensions. One thing the Government need like a hole in the head is another administrative disaster like the loss of computer discs, but I am afraid that they have one with public sector pensions. I was rung up 10 days ago by a journalist from Radio Ulster about a story that she had picked up regarding a company called Xafinity Paymaster, which pays out public sector pensions to former members of the armed services and the national health service, among others. She understood that this company had been paying out excessive public pensions, probably to hundreds of thousands of public sector pensioners, and that this error had just been discovered, and that the company was about to start retrieving the money from the pensioners.
	I made inquiries of the Government, and last Thursday had the courtesy of a telephone call from the head of the civil service, who confirmed that this problem had arisen. He asked me not to publicise it for several days in order to give the Government the opportunity to inform the pensioners personally of their difficulties—I think that I have now abided by that. He said that tomorrow, a written statement would be made that would explain the background to the problem.
	As the House does not have the opportunity to respond to a written statement, I thought that it would be more useful to mention the subject this afternoon and to pose the obvious questions, to which I hope that the Minister who concludes the debate can reply. How many people are we talking about? How much money is involved? What steps will be taken to retrieve the overpayments? I understand that in some cases those overpayments go back decades, and are potentially enormous. I do not know the answer to those questions, and I hope that the Government will clarify them. I hope that none of us will face the possibility that large numbers of ex-servicemen will suddenly be faced with bailiffs turning up and asking them to repay overpayments, as we have already seen in the appalling instances involving tax credits. I simply ask for a proper explanation of what has happened.

Alistair Darling: I half expected the hon. Gentleman to intervene earlier. There will be a statement tomorrow, but I want to clarify one of the points that he made. He was asking about repayment of money that has been wrongly paid. I think it would be better if I made it clear that that will not happen. It will be necessary to adjust what is paid in the future, but the Government recognise that there have been such payments for a long time. I would not want people to think that we will start clawing back money that has been paid erroneously. Things need to be put right from next year, and there will be a statement tomorrow by the Cabinet Office.

Vincent Cable: I thank the Chancellor for that clarification. I am not sure about the reference to adjusting what will be paid in the future, because that could mean returning to the normal arrangements or it could mean a clawback. We will no doubt receive clarification on that.
	I endorse the comments made by the hon. Member for Tatton (Mr. Osborne) about Equitable Life. I think that I have introduced at least three debates on the subject over the past 10 years, and we are finally grinding to a conclusion. It is inexplicable that yet another postponement has occurred. The hon. Gentleman did not mention the dreaded word "compensation". I would simply like to ask the Chancellor whether in the current environment compensation payments would be regarded as a fiscal stimulus; that might help the Government to face the issue that they will have to face.
	Let me turn to the main issues surrounding the economy. The position is deteriorating very fast. Quite apart from the difficulties in our own economy, within the past few days the five leading German economic institutes have suggested that the German economy may decline by 5 per cent. next year. We are seeing similar figures from the United States. The fixed-interest market, if it is extrapolated forward, suggests that the markets are already expecting that the period of deflation will last for five years in the US and for three years in the UK. We are talking about something much more serious, much deeper and much longer than any Government forecasts have yet acknowledged. I do not say that with any relish, but simply because we need to face up to the implications of what is involved.
	One commentator observed this morning that this is no longer a question of averting the modern equivalent of the 1929 crash. The crash has already happened. The question is whether we can avert 1930, 1931 and 1932. As a reminder, in that period the American economy declined by 30 per cent. and took a decade to recover. Britain's experience was not dissimilar.
	We are talking about a magnitude of crisis way beyond what has been contemplated hitherto. We need to approach it in that spirit, and not with the tiresome party games that we have several times a week in which we decide whether the Prime Minister is 80 per cent. or 20 per cent. responsible for the problem and whether, after the crisis is over, he should be subjected to the economic equivalent of a Nuremburg trial. The responsibility is shared. There have been policy failures here and there is a big international crisis at the same time. We do not need to say anything else at this stage. We need to focus on solutions.
	I want to address three issues that have come to the fore in the past few weeks that we need to think a little bit about. The first is the issue of exchange rates, which is relatively new. Secondly, we need to reflect a little on where we are with the fiscal stimulus arguments. We then need to talk a little more about the banks. The hon. Member for Tatton raised the problem—if it is a problem—of the euro-sterling exchange rate for the first time several weeks ago. He was chided by the Government for being unpatriotic and for talking down the pound. I want to make it clear that I have absolutely no truck with such idiotic arguments. It is perfectly reasonable for the hon. Gentleman, or anybody else, to talk about the pound, and to do so pessimistically or optimistically. That is an entirely sensible subject for debate and there is no reason whatsoever why he should not talk about it—although whether what he said is sensible is a different matter.

Kelvin Hopkins: Talking about the euro-sterling exchange rate, does the hon. Gentleman accept that for a decade or more the pound was overvalued relative to the euro, and that we had a structural trade deficit as a result? Have we not just experienced a sensible readjustment? Does he think that depreciation is a necessary condition, if not a sufficient one, for Britain's recovery?

Vincent Cable: I agree with almost every word of that, which makes me wonder why the issue was raised in the first place. Is it a problem? Why is it a problem? If it was raised as a problem, what is the solution? The question of whether there is a problem goes back to the precise point that the hon. Gentleman has just raised: all the manufacturers tell me that they are privately rather relieved that they can compete more effectively in their export markets and, even more importantly, compete against imports.

George Osborne: You want to join the euro.

Vincent Cable: I shall come to that in a moment.
	If there is a problem—the Conservative spokesman clearly thinks that there is—what is the solution? We need to ask why the pound has been falling for a prolonged period against the dollar, and for a rather shorter period, but substantially, against the euro too. The standard answer, of course, is that there are interest rate differentials and the markets expect bigger movements in interest rates than would occur in the eurozone. Of course, that is a mechanical answer. Why has the British reaction to the crisis had to be so much more dramatic than that in the eurozone? There are two reasons for that. First, the bubble in the British housing market was much more extreme. The other reason, which is an important one, is that Britain has a much bigger financial sector.
	Professor Buiter at the London School of Economics, who I believe is offering advice to the Conservative party on these matters, has set out a very careful argument along the lines that Britain is beginning to suffer from, or already suffers from, what he calls an Icelandic problem, which is that it is very dangerous for a middle-sized country such as Britain to have a very large banking sector or financial sector. That exposes such countries to big financial shocks and to big movements in the exchange rate. If that is the case—I think that it probably is—there are two practical solutions. First, of course, one can reduce the scale of the financial sector and do to the City what Mrs. Thatcher did to the coalmining industry; one can reduce vulnerability in that way. However, that is brutal and negative and destroys a lot of wealth creation in the process.
	The other solution is to lock in the exchange rate to a much bigger area. I shall not cause excitement by saying that that is what we ought to do, but we certainly need to have an open mind on the issue, and when the crisis is over, we may well have to return to it. I leave that with the Conservative spokesman. If he wants to raise the pound-euro issue, he must presume that there is a problem and that there is a solution—and if that is not the solution, I would be interested to know what is.

Andrew Pelling: I thank the hon. Gentleman for giving way, despite the fact that that displeased his colleague the hon. Member for Taunton (Mr. Browne), who is sitting next to him. Is not a better measure of the problem the credit default swap and the way in which the spread is widened out to 113 bases at once for five years of CDS? Surely, as has been suggested in the media, the problem is that the Government are ultimately liable for the £9 trillion of liabilities and assets from the banks. The country is exposed to a very real danger if the Government are driven to nationalising the entire banking sector, excluding HSBC.

Vincent Cable: I think the hon. Gentleman is putting my point in a slightly different way: the British financial sector is extremely large relative to the economy and a lot of risks flow from that. I should be interested to hear his solution.
	The second issue arises from the controversy with Mr. Steinbrück in Germany over the past few days about fiscal stimulus. I agree with the hon. Member for Tatton that there is an element of schadenfreude. The Germans have been lectured for years about how wonderful it would be to adopt the Anglo-Saxon model of financial capitalism and how they should copy everything the British Government have been doing, but have now discovered that it was not so clever after all. The Germans are obviously having a bit of fun, but Mr. Steinbrück has been making a serious point about the lack of wisdom—as the Germans appear to believe, or at least he does—in having a fiscal stimulus.
	The Conservatives have taken a certain amount of moral encouragement from the fact that they have at least one ally in the argument. I am not sure how firm the ally actually is, because over the weekend the Germans seem to have capitulated and agreed that there should be a fiscal stimulus after all. None the less, there is a strong argument made by the Germans and, among others, the Polish right wing, that we should not have fiscal stimulus. We need to examine such arguments carefully, because this is absolutely crucial to where we go from here.

Mark Lazarowicz: Will the hon. Gentleman give way?

Vincent Cable: I will take interventions shortly.
	Western economies are in an extreme state of crisis. If interest rates cannot do the job, fiscal stimulus has to be the alternative. As my hon. Friend the Member for Eastleigh (Chris Huhne), has already pointed out, we already accept a fairly high degree of consensus that a large part of the present deficit will have to happen; we are arguing about whether a little more should be put in on top. In the British case, we are talking about between 1 and 2 per cent.
	What are the arguments against the fear felt by the Germans—and, presumably, the British Conservatives? Their first argument is that there is no point in a fiscal stimulus because people will not spend, but will just save. They will see taxes coming in the future so they will see no point in spending the windfall; they will hoard it and save it, so nothing will happen. There may be an element of truth in that, but it depends on exactly how the measure is applied. One of the reasons why we shall be coming back to discuss the VAT changes on Wednesday—having prayed against the order—is that they are not the best way to provide fiscal stimulus. They create precisely the problem that the Germans have identified, which is why we argue that fiscal stimulus is better done the American way, predominantly through public works. What the Americans call shovel-ready projects are a much better way of getting income into the economy.
	The other way of arguing that fiscal stimulus is a bad idea is to say that although we get something today, we shall have to pay for it tomorrow—an argument that Keynes famously demolished with the line:
	" in the long run, we're all dead."
	He was not simply saying that the long term is further away than the short term, as it obviously is, but was making the more profound point that if Governments do nothing the recession is even deeper, so the public finance position is even worse. Government deficits and debt will be even worse if there is no financial stimulus. That is the core of the argument that all the other members of the developed world—and, it would appear, the Chinese and the Indians too—now accept. It has to be right—and Mr. Steinbrück has to be wrong—that a fiscal stimulus is a necessary part of the solution. I am very disappointed that the Conservatives have not understood that fairly simple basic point.

Andrew Love: On the basis of what the hon. Gentleman has just said, and the gloomy scenario he painted at the beginning of his speech, is there any room for further fiscal stimulus in the future?

Vincent Cable: There may have to be, although we are rapidly exhausting it. The issue we face—and a question I intended to put to the Chancellor—is whether what has been done is too little, too late to avoid a major contraction. The issue being raised by the chairman of the United States Federal Reserve is that we need to go further than cuts in interest rates and fiscal stimulus; he used the phrase "quantitative easing", which is a nice, economist's way of talking about printing money. That raises all kinds of concerns in "The Dog and Duck" about what printing money actually means—but in fact it would mean the Government borrowing from the central bank and using that money either to make cash available or to buy up bonds to drive down the interest rate yield on long-term bonds and the cost of capital, or it could mean buying up assets. The Government can do lots of things, but that is the next issue on the agenda. If we are to have a forward-looking approach to the problem, it would be useful to know the Government's view of that idea. Would they support it? Are they advocating it?

George Osborne: The question is whether Britain can afford a fiscal stimulus, not whether China, or indeed the United States, should undertake one. There is pretty broad consensus, expressed recently by the European Commission:
	"For Member States, particularly those outside the euro area, facing significant...imbalances, the aim of budgetary policy should be to correct those imbalances."
	In other words, Britain cannot afford extra discretionary borrowing. It relates to the point that the hon. Gentleman was making earlier when he was comparing the British and Icelandic situations; there are serious issues not only about Britain's creditworthiness, but also about how a country that goes into recession with a high budget deficit can afford to add to it in a discretionary way.

Vincent Cable: The European Commission is not always right, and on this occasion I think it is wrong, for two reasons. The first is that although the British economy undoubtedly has problems—the British fiscal deficit is one of the largest in the western world—British public debt in relation to the economy is not exceptionally large. It is lower than in the United States or in Germany, which puts Mr. Steinbrück's comments in context—but I do not totally disregard what the Conservative spokesman said; we have to be careful. We are already beginning to see that highly indebted countries such as Italy are finding it increasingly difficult and costly to borrow in international markets. If we reached that point, we would be in some difficulty. What he says is not completely wrong, but there is much scope for the Government to act, and they should act.

Stephen Dorrell: Does it not give the hon. Gentleman pause that the Government's figures, set out in table 1.1 of the pre-Budget report, show that if they borrowed in accordance with their plans, both the new borrowing they incur and the total stock of Government debt resulting from that borrowing would be higher as a percentage of national income than at the peak during either the 1975 recession or the recession of the early 1990s?

Vincent Cable: The right hon. Gentleman is right, because this recession is very bad and public debt as a share of the economy will indeed rise to alarming heights, as it will in all other major western countries.
	The Conservatives constantly ask the Government to confirm that British debt will double. Of course it will. Why cannot the Government admit it? It is part of the logic of what is happening.

Kelvin Hopkins: Does the hon. Gentleman accept that there is still more scope for increasing taxes on the very rich? That revenue, if not spent directly, could help to service Government debt.

Vincent Cable: That is right, and we have made a few suggestions about how it could be done. We wish the Government had pursued them rather than flying their little flag about the 45 per cent. rate, which will not raise much money at all.

Frank Field: The House would find it valuable if the hon. Gentleman could spell out the differences between Government and Liberal Democrat policy. Might the difference be that his policy has a much greater chance of raising revenue, because he would change the value of tax allowances to the rich—for people who were claiming the allowance, who would thus already be paying tax—whereas we just hope that the rich will be a little more honest in completing their tax returns?

Vincent Cable: I thank the right hon. Gentleman for making my point. I think the Government are saying that they will not make the change for two years, but if the top rate is raised to 45 per cent., top-rate taxpayers will have two options: to convert their income to capital, on which they need to pay only 18 per cent., or to put the money into large pension pots, where they will have relief at the 45 per cent. top rate. It is to stop those two things happening that we suggest a more far-reaching reform of the tax system, which would raise much more revenue.
	Let me move on to my third issue, which has to do with banks. Again, the Conservative spokesman was absolutely right to emphasise that decisions taken on the banking system are much more important than many of the issues that we have been discussing. The balance sheet of two of our banks—the Royal Bank of Scotland and Barclays—is substantially bigger than the whole of Government debt; that puts what we are talking about in context.
	I should like to refer to several points raised in the debate. The suggestion was made that the Government coupon on the preference shares should be reduced; I think that the phrase that the hon. Member for Tatton used was that 12.5 per cent. was "too expensive". What is too expensive, I ask? When Barclays tried to raise money for itself in the market, it paid 16 per cent., so what is too expensive and what is too cheap? If we go much below 12 per cent.—if the Government were to negotiate—we would be talking about a subsidy to privately owned banks. We would effectively be resorting to privatising profits and socialising risks, as the old adage has it; that is what the Government seem to be being urged to do. It may be the right thing to do; perhaps there is no alternative. However, let us be clear about how much subsidy is being advocated.

Andrew Tyrie: Would the hon. Gentleman agree that the 16 per cent. that he quoted is not really a market figure? There scarcely is a market for the papers that we are talking about at the moment. That market hardly exists, so the figure is not a reasonable comparator on the basis of which to try to calculate the size of the subsidy.

Vincent Cable: It is the only comparison we have, and it is what the bank paid, so presumably that is the alternative benchmark that we have to use. None the less, my point is a simple one. If the rate is to be cut, what will it be cut to? If there is to be a subsidy, who will pay it, and what should it be? I agree with the more fundamental point that the hon. Member for Tatton made—indeed, I have made it frequently myself in the past few weeks and months—which is that the banks are being given completely contradictory objectives. They are being told to lend more. They are being told to lend less by the Financial Services Authority, which wants them to hold more capital—perhaps too much capital, given the context. They are being told to repay the Government's loans. They also have their own objectives—to service their shareholders.
	Surely the one thing that the Government have to do above all else is to be absolutely clear about the priorities. If the priority is to lend more, that has to be spelled out explicitly, and it has to override the other objectives. It does not matter whether we achieve that by putting people on boards, or simply by making the objectives very clear. What is completely lacking is any clarity at all about the strategy for the banks. That really has to be sorted out.
	Finally on banks, the Conservatives have come up with a positive suggestion—the idea of guaranteeing new credit. That suggestion is part of the mix, and I welcome it. I should confess that when it comes to that subject, I have some form: 25 years ago, in the last banking crisis, I was invited to work with Lord Lever, whom some Labour Members may remember, on coming up with a way of getting credit going in a banking crisis—in that case, the crisis related to Latin America. Indeed, my hon. Friend the Member for Eastleigh was involved in the same exercise. The solution that we came up with was a loan guarantee scheme. It never actually worked. The problem posed was as follows: either we insist that banks take a share of the risk—that is the right and fair thing to do, but if we do that the banks do not do anything, because they do not want to take risks—or we effectively underwrite the lot and nationalise credit. It is not clear which of the two is being proposed. It seems to be a bit of each, or something between the two.
	A rather perceptive comment was made by the political editor of  The Independent, who said that
	"the National Loan Guarantee Scheme is potentially even more statist than Labour's schemes."
	That may be right. If the scheme is to work on a large scale, that is what is involved—the nationalisation of credit, and some of us are not totally repelled by the idea. None the less, we should be clear about what is involved.
	In conclusion, we are faced with a desperately serious and deteriorating situation. The figures that have come out in the past few weeks for some of the other developed countries are positively alarming. What is required is not a single-bullet solution, but a combination of measures: a radical approach to monetary policy, cutting interest rates, fiscal stimulus and radical action to get bank lending working. What is needed is not one of those measures, but all of them.

Several hon. Members: rose —

Mr. Deputy Speaker: Order. Let me remind the House that Mr. Speaker has placed a 10-minute limit on Back Benchers' speeches; it applies from now.

John McFall: It is a pleasure to speak in this Queen's Speech debate. The 2008 pre-Budget report stands as a testament to the significant change in outlook for the economy over the next few years. There has even been a change since the forecasts provided by the Treasury at the time of the 2008 Budget. The downturn has spread to the real economy from the financial sector, so it is appropriate and important that we examine the issue of bank lending.
	The Governor of the Bank of England, in his evidence to the Treasury Committee on the November inflation report, stated that he was in
	"no doubt that the single most pressing challenge to domestic economic policy"
	was
	"to get the banking system to resume lending in any normal sense".
	However, the market is telling the banks that they must hoard capital, so individually banks are trying to strengthen themselves by reducing their lending. That action on the part of each individual bank is having a collective effect. The reduction in bank lending is slowing the economy to the point where jobs are being lost and companies are becoming insolvent. That in turn raises the loss rates on bank lending.
	One expert witness before the Committee said:
	"It seems to me to be not adequate to give the banks money to back up their balance sheets and then expect them individually to behave in the collective interest; they cannot. Any self-respecting bank management, not having confidence that the others were going to do the same, would batten down the hatches and be cautious—to the point of recklessness from the point of view of the collective interest."
	Let me stress the key phrase: banks are being
	"cautious—to the point of recklessness".
	The Government face a dilemma. Despite the considerable injections of capital and the credit guarantees, bank lending seems either unavailable or overly expensive. Where, ask the public, is the payback for the taxpayer assistance provided to the banks?
	We must be prepared to think flexibly, perhaps even radically, about the next steps. If the lending panel is unable to persuade the banks to start lending again, we may have to be bolder in our prescriptions. Nothing should be ruled out. Indeed, when the Governor of the Bank of England came before the Committee a couple of weeks ago, he said that nothing should be ruled out, including the possibility of nationalisation. The Government must consider directing the banks to lend, as suggested by Roger Bootle to our Committee. It could be considered a market failure if the banks did not lend more, so a public sector intervention could be warranted to produce a better overall outcome, as I have said.
	Of course, if the banks take that direction, it will raise its own problems. A careful balancing act is in operation between the Government's need to receive repayment, the needs of the banks, which do not want further to damage their future profitability, and the needs of consumers and businesses, who need additional lending by the banks now. One of the messages that the Government should get across to the banks is that they should consider themselves nationalised for quite a long time, so that we can get the problem sorted out. The Committee visited Sweden; in the 1990s, that country had problems, and some of the banks there are still nationalised. In fact, there is still 20 per cent. Government investment in the top bank there. A long time is needed to sort out the problems that we are discussing.

Kelvin Hopkins: I am very interested in what my right hon. Friend is saying. What is wrong with a substantial part, or all, of the banking sector being permanently nationalised?

John McFall: That is my hon. Friend's viewpoint. If we can get the system working, and do not rush to judgment, that is fine, but I want the system to work. We do not want the banks to lend recklessly. In the long term, we recognise that bank lending will need to come back into line with savings. We will need to close the £700 billion funding gap. I am talking about the difference between the level of savings and lending in the banking system; that gap has opened up since 2001, when savings and lending were in equilibrium. Seven or eight years later, there is a £700 billion gap. We will all have to address that in the medium or longer term. We need the banks to lend constructively in the short term. At present, viable businesses are not getting the money that they need, and if the economy is to recover as the Government forecast, the banks must begin to lend. The pre-Budget report highlights that lack of lending as a risk to the Government's forecasts, and certainly the Treasury Committee will scrutinise that problem regularly. We will conduct a banking crisis inquiry in the new year, when it will still be a big feature.
	May I discuss the fiscal stimulus to the public finances which, as the hon. Member for Twickenham (Dr. Cable) eloquently said, is absolutely necessary if we want to avoid a longer, deeper recession? The fiscal stimulus—excluding weakening tax revenues and a rising benefits bill; the so-called automatic stabilisers, which have been accepted by the official Opposition—has cost £20 billion so far. It is not a question of whether we can afford that but of whether we can afford not to have a fiscal stimulus. The answer to that is a resounding no.
	Economic growth in 2009 is forecast to be about half a percentage point higher than it would have been in the absence of a fiscal stimulus. The 2005 figures from research undertaken by the House of Commons library show that the Exchequer cost for each additional unemployed person was about £10,000 per year in benefits and lost national insurance contributions. Those figures take no account of indirect costs, such as reduced output and corporation taxation, increases in bad debts, and the social costs of unemployment, which result in higher demands on the NHS and social services agencies. They do not take account, either, of direct local authority costs through housing and council tax benefits and free school meals. Action at this stage can therefore prevent catastrophe at a later stage for individuals and families.
	We cannot allow the recession simply to take its course, and wait for the resulting redundancies and repossessions to materialise. Not only would that be completely unfair on thousands of hard-working families and undo a decade of the work Labour has done to combat poverty and promote social and financial inclusion. But as I have said it would be expensive in the long run. We cannot rule out the possibility that we may need to go further and invest more to guide the economy through the downturn. The Government should consider putting money into the pockets of those with the lowest incomes—they are the people who need the most support during these tough times, as they are most likely to spend rather than save any extra money given to them—as that would provide a kick-start to the economy.
	I have looked at the blogs of certain right hon. and hon. Members, including the right hon. Member for Wokingham (Mr. Redwood), who said on 10 December:
	"Any tax reductions this year should be Income Tax reductions helping the lower paid."
	That is a very good start to the fiscal stimulus—someone is coming on to our side on that issue. There are a number of inconsistencies in the argument made by the official Opposition. They have said quite clearly that they would do nothing to protect the homes and jobs of families across the UK during the recession, and the Leader of the Opposition said on the "Today" programme last week that he would let the "automatic stabilisers" operate—he would allow tax receipts to fall and unemployment costs to rise, as is normal during a recession.
	However, as I said in an intervention, Treasury figures show that most of the Government's borrowing is down to those automatic stabilisers, which the Conservatives support. Next year, when the Government's fiscal deficit reaches 8 per cent. of GDP, only about 1 per cent. of that will be due to the Government's fiscal stimulus measures, with the other 7 per cent. made up of increases in borrowing relating to the automatic stabilisers. Indeed, figures from the Institute for Fiscal Studies, which the official Opposition love to quote, show that over a five-year period until 2013, due to automatic factors alone, projections of Government borrowing have increased by more than £310 billion compared with the outlook at the time of the March Budget. That is far above the Government's discretionary measures, and the Conservatives have committed themselves to it. The Conservatives are therefore committed to increasing public debt, and they should be honest, clear and transparent about the issue.
	The Conservatives have spoken, too, of a tax grab after 2010. Again, according to the IFS, the measures in the PBR will increase the tax take by only 0.6 per cent. by 2013. It is economic growth that will be the major factor in paying off the extra debt, not higher taxes. When the economy returns to growth, the automatic stabilisers will therefore reverse. The official Opposition need to be reminded that between 1997 and 2002, the Labour Government decreased public sector net debt from the 43 per cent. of GDP that they inherited to 29 per cent. That was not the result of higher taxes, but of economic growth and careful financial management. When the deputy governor of the Bank of England, Sir John Gieve, appeared before the Treasury Committee and was asked about that extra borrowing, he said that if we went back to the position in the early 1990s with GDP debt at 8 per cent., that could be cleared up over a 10-year period. We must therefore have faith in the fiscal stimulus, and in the longer term ensure that the budget is balanced. If we could do it from the '90s to 2000, we can do it now.
	Roger Bootle said in  The Daily Telegraph:
	"Extra borrowing by the Government, if it encourages more output, can be self-financing."
	The debts can be paid off when the economy returns to growth. The official Opposition, however, would cut spending now, at the worst possible time for the economy. Cuts in public spending mean cuts in benefits and public services, and public sector job losses. At a time of recession, that is economic madness. The Government plan to reduce spending when the time is right, to allow our debts to be paid off when the economy returns to growth, and they are absolutely correct to do so.
	The official Opposition say that under the Government's policies public debt is too high. Again, the Leader of the Opposition said on the "Today" programme:
	"We are going to have the public finances of Italy".
	What absolute nonsense. What sort of statement is that? The Leader of the Opposition should know that the public sector net debt in the UK will peak at 57 per cent. of GDP in 2014, which is lower than today's public sector net debt figures for France, Germany, and the USA and, indeed, Italy, which has double that figure at over 100 per cent. The debts of other countries will increase, too.
	The Conservatives have found themselves on the wrong side of the argument on the international stage, as the G20 have agreed with the Government. They have found themselves on the wrong side of the argument with respected economists such as Sam Brittan, who said:
	"Maxims about debt that might be prudent for families can be the height of folly for governments."
	They have found themselves on the wrong side of the argument with the former Conservative Cabinet Minister, Michael Portillo, who wrote in  The Sunday Times yesterday that
	"the opposition is... doomed to replay its bad dream."
	He said that the Leader of the Opposition would find himself on the same ground as two previous leaders of his party, the right hon. Member for Richmond, Yorks (Mr. Hague) and the right hon. and learned Member for Folkestone and Hythe (Mr. Howard), and would be asked repeatedly at the next election where the cuts would come from. We should not allow the British public to face the chill winds of the economic recession over the next few months alone. We must do everything to assist and help them, so that the recession is more palatable for them, we can come out the other side, they can spend and we can end up with a balanced budget.

Peter Tapsell: Under the 10-minute limit for speeches, one can really utter only a few soundbites, without giving any supporting arguments. I will save nine and a half minutes by saying that I agree with almost everything that the hon. Member for Twickenham (Dr. Cable) said, and that I am a regular reader and admirer of Mr. Bootle's articles in  The Daily Telegraph. That saves a lot of argument.
	To be entirely serious for a moment, I am probably one of the few people in the House—perhaps the only one today—who remembers the 1930s slump. My father was unemployed, and I remember my mother weeping in the kitchen, and all that. I agree with the hon. Member for Twickenham that we are facing a very grave situation indeed which, I am afraid, will be comparable, in due course, with the 1930s. So I do hope that the House of Commons will stop the amusing knockabout atmosphere in which these matters have largely been discussed up till now. They are too grave. Nobody enjoys parliamentary knockabout more than I do, but the country faces the gravest crisis since May 1940. The whole world capitalist system is in danger and there could be mass unemployment in this country in two or three years.
	In 1932, 20 per cent. of our work force were unemployed. I have listened with interest and studied all through the past week the quotes from Germany, but it is worth remembering that Chancellor Brüning, who was the chancellor in the last years of the Weimar republic, was advancing views and pursuing policies almost identical to the speeches that we have just heard from the German Minister of Finance. Although it was quite unintentional on Chancellor Brüning's part, he had the effect that whereas the Nazis got 8 per cent. of the vote in 1928 and 20 per cent. in 1930, they were in power by 1933. Herr Brüning, as he had then become, very wisely fled to Harvard and spent the rest of his very long life lecturing on the merits of classical economics.
	I am not suggesting that anything of that kind is likely to happen in Germany again, but it is interesting that Chancellor Merkel slapped down her Finance Minister within 48 hours by signing up to a fiscal stimulus of €200 billion for the 27 countries of Europe. My German friends—hon. Members may be surprised to know that I have quite a lot of them—tell me that she is waiting to produce a much bigger fiscal stimulus at the same time as President-elect Obama's Administration produce theirs. I predict that when President-elect Obama becomes the President, he will produce the biggest fiscal stimulus that the world has seen since Franklin Delano Roosevelt.
	Of course, every country is different, and each country is influenced by its history. The German nightmare has always been the inflation of the 1920s, and our nightmare has always been—though perhaps much more among my generation than among younger Members—a return of unemployment. I remember when the Speaker in Ted Heath's day had to suspend the sitting of the House of Commons when unemployment went over 1 million. There would not be that reaction today, but in the early 1970s everybody in the House remembered what unemployment was like. People have forgotten it, and it will be much more difficult this time because the benefits system is so infinitely more generous. The enormous increases in expenditure that we will have to make in order to look after our unemployed will make the whole financial situation even more difficult.
	I am just as good a monetarist as the next man. I am a Keynesian, and nobody wrote about monetarism with more authority than Keynes, but deflation is a very much more difficult problem to deal with than inflation. Everybody knows how to cure inflation, although it is extremely painful. To some extent, everybody had proceeded on the assumption that Keynes had buried deflation. Well, it has now risen from the grave and it is extremely difficult to cope with, because once one has reduced interest rates to a very low level, the monetary weapon ceases to be at all effective, as the governor of the European Central Bank pointed out yesterday, quoted in the F inancial Times.
	In America people have been pouring money into the three-month Treasury note market, which as a result is already showing a minus zero return. At the same time, the long end of the bond market—the Government end—has gone up enormously. I, naturally, have all my life savings in the American dollar and in long-dated bonds. The dollar has gone up enormously and the bonds have jumped by 20 per cent. in the past month. I do not understand why all our pension funds are collapsing. All the fund managers had to do was to do that and they would all have had enormous increases, but the fact is that the people who run our affairs are quite fantastically incompetent.
	I made five suggestions to the Prime Minister on the Floor of the House before his Chancellor produced the pre-Budget report. He said subsequently that he had accepted and adopted them all, but that I had not convinced those on my Front Bench. That is not a new experience for me. I did not succeed in convincing those on my Front Bench not to join the exchange rate mechanism; I failed to persuade them not to introduce the poll tax; and I failed to persuade them not to support the invasion of Iraq. So I shall try again and suggest that we should not rule out the possibility of fiscal stimulus at a time when we face the prospect of the biggest deflationary slump that anybody can remember and when the monetary weapon has been virtually neutralised.
	That is one of the reasons why—I want to try to curry favour, as always, with my Front-Bench team—I am a great admirer of their plan for a national loan guarantee scheme. It will be £50 billion, and what I like so much about it is that it will be a magnificent fiscal stimulus. As was pointed out with reference to the south American experience, one can be quite sure that the banks will not take on any of the risk. It will all be taken on by the taxpayer, it will be paid for by extra borrowing and it will do an enormous amount of good, because the three great dangers are, first, the banks not continuing and having to be bailed out, secondly, that the banks will not lend to each other, and thirdly, that the banks will not lend to business. The national loan guarantee scheme will greatly encourage banks to lend to business, which is exactly what we want, and will perhaps mean that unemployment will therefore not soar quite as high as I fear.

Malcolm Wicks: Most of the debate has, understandably, been on the grave economic situation that faces the country and our constituents. I, however, will move on to issues connected with welfare reform and the future of our welfare state.
	I preface my remarks by saying something with which most people would agree. I believe that the advent of the welfare state, which my party in particular is pleased about in terms of our role, but which nevertheless has politically mixed parentage, has been one of the most civilising forces in our society. It has helped tackle some of the debilitating impacts of inequality, and within that welfare state our social security system is crucial. That is why I support reform of our welfare state.
	Our welfare state, as it has developed over the past 10 or 20 years, faces many pressures and demands. Some are demographic—the ageing of our population, and hence the importance of the pension question, both the state pension and occupational pensions. There is a debate to be had about what I regard as unfinished business in relation to the costs of long-term care, which are a significant worry to many of our constituents and many families.
	There have also been significant family pressures. We have seen a revolution in patterns of family formation and family dissolution, including the fact that growing numbers of our children in Britain, for reasons that we can understand, now spend significant parts of their childhoods living with just one parent, rather than two. All that raises a host of questions and any sensible answers that we seek in the coming months and years need to be grounded in an understanding of what a welfare state should be about in the early years of the 21st century.
	Recently, I visited one of my constituents—an elderly gentleman who wanted to talk to me about these issues. He had two political heroes: Winston Churchill, whose portrait was on the wall, and Ernie Bevin. My constituent told me that during the war years and the period of social reconstruction, based significantly on the Beveridge report, after the war, British people understood what he called the "rules of the game". He meant that people would make national insurance contributions when they could—that was their responsibility—and that, when in need, they had an equal right to take from the community chest of those contributions. His concern was that he felt that there was no longer any kind of consensus about the rules of the game. He thought that the welfare state did many good things, but that people did not understand the foundation of values on which it was based. I have been reflecting on that since my conversation with my constituent from Croydon, North.
	Clearly, the Government's, and surely Parliament's, objective is that those in a position to work or who could be in a position to work, with adequate support—perhaps through extra training and skills enhancement—should do so. That would be good for the individual and their family, good for the economy and good for the public sense of fairness; it would build up confidence again in our welfare state and what it is about. Moving from principle to practice has never been easy. A number of specific questions arise, such as, "Which citizens are able to work?" Those with the most serious disabilities—and I mean the most serious—cannot work, and they deserve our support through social security and wider welfare state provision. But how do we account for the extraordinary increase in the numbers of our citizens on what we have until recently called incapacity benefit? Between the late 1970s and the mid-1990s, the number of people claiming it trebled.
	There is a different kind of question: how old should be the youngest child of a lone parent—who is sometimes, but not always, unsupported by the child's other parent—before that lone parent can reasonably be expected to seek a job? There are many other questions, but those two issues of incapacity and lone parenthood are at the heart of our reform agenda. They account for millions of our people, both adults and children. They involve billions of pounds of the public's money and are complex and controversial—not least because many of those affected are among our most vulnerable and deprived fellow citizens.
	To help us through this political, economic and human minefield, I should say that the starting point should be about developing a new—I suppose that I really mean "a renewed"—public understanding, and therefore as much consensus as possible about the relationship between the citizen and the state. That should start with citizenship, a concept to which too often we pay lip service but neglect. What are the rights of the citizen in relation to the welfare state? Equally, what are the citizen's duties and responsibilities? I mean the duties to work, when that is practicable, and to provide for dependants, even when separation or divorce means that one parent no longer lives permanently with his—or sometimes her—children.
	The British welfare state was established on a firm principle, which, as I implied earlier, was widely accepted; it was certainly accepted by my elderly constituent. It was that if people could work, they should work and they would work. However, if they could not, they could draw benefits, as of right, without stigma or fear.

David Taylor: Does my right hon. Friend agree with me about one point in the fine speech made by the hon. Member for Louth and Horncastle (Sir Peter Tapsell)? I believe that the hon. Gentleman went wrong in saying that the benefits provided to those who might be squeezed out of work would be infinitely more generous than they had been. That gives the impression that people can somehow fall back on cushioned indolence. That is the impression held by some members of the journalistic profession and of the wider population. It is not the case, however; benefits are a base from which to work, but they are certainly not generous.

Malcolm Wicks: Let me pursue my argument, because I will touch on that issue—and, I fear, not necessarily in ways that will please my hon. Friend.
	Where are we now on these issues? I believe that the great majority of our constituents still accept the principle that those who can, need to work. I met another constituent at my advice surgery who was going to enormous efforts to maintain her work in the most difficult family circumstances, including domestic violence. That sense of work ethic is still held by the vast majority. However, I have learned—not so much through my past research studies, but more through the seminars, so to speak, at my advice surgery—that a minority do not accept their responsibility to work. Understandably, the majority of our constituents feel resentment towards them. A minority feel that work is merely one option alongside an equal option to stay on benefits. I have met those people; they sometimes come from households in which no one has worked for 10 or more years, despite having adult status.
	We need to consider the workings of housing benefit; there is some review of the issue at the moment. We also need to consider the issue of fraud. To be blunt, if we are honest—the public know this, and we should—we need to look at those who are lone parents in terms of their benefit status, but are part of a couple in terms of their living arrangements. We need to be honest about that if there is not to be a gap between what the public understand on the estates and elsewhere, and what we in Parliament understand.
	Alongside those work-shy households—my elderly constituents would call them that—are other citizens in the most chronic need. When I go around my constituency, I am struck by the fact that those in greatest need are still those with serious disabilities. Sometimes they are young children who have suffered the consequences of measles—that is another debate. Sometimes they are grown-up children and sometimes they are the frail elderly. Those people, who often get a great deal of support from the public, need yet more. They and their carers need some of the help that we are squandering at the moment by not putting the principles about work first into practice.

Andrew Pelling: Will the right hon. Gentleman give way?

Malcolm Wicks: I do not have the time to, sir; I am sure that we can debate these matters later in a prominent London borough.
	Some of the people who feel that they have a right to stay on benefits have little understanding of the effect of that on their fellow citizens; those who pay for benefits include people on low wages, and their circumstances are often little different from those of people on benefit.
	In conclusion, although I support the broad thrust of what the Government are doing on what we now call—copying the Americans, for some reason—welfare reform, we need to approach the task sensitively. The Government are doing that. I always thought it nonsense that until very recently we were telling lone parents that they could stay on benefit until their youngest child was 16. That was nonsense, given that many other parents in two-parent families were working when their children were far younger. The policy did not do the lone mother or her children any good.
	I like the direction in which we are moving now; we are being more realistic about the issue. However, we need to be sensitive, and Ministers are being so. There is some talk that people should be in work when their child is one year old. Let us be sensible. By all means, we should encourage such parents to go on training and enhance their skills and the rest, but such children are so preciously young and we should not spoil a good policy by appearing to be too tough-minded and too negative about those caring for the youngest child.

Peter Viggers: The right hon. Member for Croydon, North (Malcolm Wicks) made a thoughtful and constructive speech, and I am sorry not to follow his theme, but I want to talk about the economy.
	The Chancellor of the Exchequer said in his Budget in March:
	"Britain is better placed than other economies to withstand the slowdown in the economy."
	He went on to say:
	"I am able to report that the British economy will continue to grow throughout this year and beyond."
	Later he underlined the point by saying that
	"we enter this period of uncertainty better placed than any other major economy."—[ Official Report, 12 March 2008; Vol. 473, c. 285-287.]
	Since then, of course, the markets have blown the Government a decisive raspberry. The pound has fallen 26 per cent. against the dollar and 14 per cent. against the euro. The Government have clearly got this completely wrong, and the situation is dire. For 10 years, they have been boasting about their brilliance, notably the current Prime Minister with his glutinous self-satisfaction in his Budgets. How did they get away with it for 10 years? The truth is that during that period we have had a tailwind of globalisation, with first, the Asian tigers, and then the BRIC countries of Brazil, Russia, India and China. They have had 9 to 14 per cent. growth, and the rising tide of prosperity has covered the horrors that this socialist Government have imposed on us.
	There are two main issues: first, we are over-taxed; and, secondly, we are over-governed. Both are equally important. Tax is cumulative—we pay direct taxes, indirect taxes, fuel duties, excises, and council tax. The burden of tax is too high, unfair and, in many cases, too complicated. We are over-governed, with all kinds of legislation under the umbrella of human rights, European legislation, health and safety, freedom of information and the ghastly tax credits system. We are being micro-managed, and too many public sector jobs and pensions have been created. The situation was really quite bad, but it has taken this Government to make it dire.
	The hon. Member for Twickenham (Dr. Cable) tried to think of a doppelganger for the Prime Minister and came up with Stalin and Mr. Bean. I have been pondering this, and I think that I have come up with a better one. Think of a big guy, a bit overweight. He is a Labour Member of Parliament, difficult to work with, thinks that he is brilliant and the rest of the world is stupid, tells us that black is white and white is black, and goes around stealing from pension funds—yes, it is Robert Maxwell. I mention pension funds because the two legacies that this Prime Minister will leave are the damage to the economy and the damage to the hopes of many people in their thirties and forties who have no chance of enjoying the level of dignified and comfortable retirement that current pensioners have. The Prime Minister is responsible for that serious problem, which results from the loss of and damage to pension funds together with the weakness of the stock exchange and assessments on longevity.
	I want to turn to the banking crisis and where we stand now. The diagnosis of the problem and the analysis of how to work our way out of it have been very unsophisticated. In the United States, the concept of putting together a $700 billion fund to buy out toxic assets was completely wrong. Similarly, in this country, pumping money into the banking system has been unsophisticated. Why should anyone invest in an asset of uncertain value? The best analogue for our present situation is the situation at Lloyd's of London in the early 1990s—it was called the spiral. Lloyd's underwriters would underwrite a risk and pass it on to sub-underwriters, and it went round in a spiral, with sometimes the same risk being insured several times—not just twice or three times but many times more than that. The spiral caused Lloyd's immense problems. I was there. Following my time as a director of a secondary bank in the 1970s, I sat on the Council of Lloyd's—in fact, I sat on its audit committee as an outside name—trying to put the situation right.
	I have made this comparison before, and I am pleased that others have now made it. The  Financial Times reported on 17 November:
	"Lloyd's, the insurance market that almost collapsed under heavy losses, survived through a restructuring that was the 'prototype of the bad bank', offering hope to financial institutions grappling with toxic debt, said Lord Levene of Portsoken, chairman of Lloyd's."
	Lord Levene went on to explain how this was done. Banks should create a subsidiary to accept the assets that cannot be confirmed to be of a certain value; for the sake of shorthand, I will call them toxic debts. The toxic debts are put into the toxic subsidiary, and then the purged entity—the parent company—is a bank that can demonstrate its value and the fact that it is worthy of investment. As I said, why should anyone invest in an institution if its assets cannot be confirmed to be of a certain value? That is why people have been so reluctant to invest in the City and in banks, and why all banks are now reluctant to pass on credit to other banks and make loans.
	That approach can work out extremely well, as it did in the case of Lloyd's. The subsidiary in question was called Equitas. Each of the insurance underwriting syndicates delegated its toxic assets to Equitas, which was managed separately. As Lord Levene said in his interview with the  Financial Times:
	"'If you have got this great boulder hanging over your head you need to concentrate on that all the time', he said. It makes it easier to move on, 'if you say we will let someone else concentrate on that and we will carry on running the ongoing business.'''
	In the case of Equitas and Lloyd's of London, the asset was eventually sold off to Warren Buffett. The toxic assets had been "managed on". The great advantage of doing it in that way is that by pulling together the spiral of collateralised debt obligations and other assets that have been loaned on from bank to bank and identifying the weakness in the market, one finds that the loss had provision made against it by more than one institution, so the provision against loss is not only duplicated but multiplied many times, and the loss is less than one originally expected.
	The Government have completely failed to identify the main problem, which is the banks' unwillingness to lend. The Conservative Opposition are exactly right in proposing a scheme that would guarantee lending and carefully target action where it is most needed. This Government are floundering. I have never felt more strongly that workers and advisers in the Treasury and the Bank of England should argue their point strongly with the Government. Above all, however, it is crucial that we have the opportunity to give the voters a chance to vote this Government out and a competent Government in.

Michael Meacher: Like most other speakers, I want to concentrate on the recession and how we should be dealing with it. Let me say at the outset that I strongly support the Government's fiscal stimulus. When I listened to the shadow Chancellor, I heard nothing that persuaded me to change my mind about the fact that the Tories are making a very big mistake if they believe that showering the banks with billions of pounds of public subsidy at taxpayers' expense is compatible with treating the situation of the rest of the population in the real economy as a no-go area, with retrenchment and massive public expenditure cuts.
	Having said that, I believe that the means that have been chosen to deliver the fiscal stimulus need re-examining. Let me explain why. First, the Government are obviously right to try to increase demand by trying to get the banks to lend more credit and putting money directly into people's pockets, but we seem to be getting the worst of both worlds. The Chancellor keeps urging the banks to pass on lower interest rates and to lend more credit, but it is just exhortation without any sanctions. There are no targets for lending in exchange for the billions of pounds of taxpayers' money that the banks have received, and no penalties for falling short. I regret that my right hon. Friend the Secretary of State for Work and Pensions has left the Chamber. In his statement about welfare reform, conditionality was all the rage, but when it comes to the banks, in a much bigger economic forum, conditionality appears to go out of the window. That is a mistake.
	The Government have also tried to put money into people's hands directly through the 2.5 per cent. VAT cut. The trouble is that it is extremely costly in terms of lost revenue and it is disproportionately less effective. The deadweight cost of £12.5 billion in increasing demand is extremely high in the context of retail discounts, which have already been given, of 20 or 30 per cent. A far better way of trying to get money spent is to give to all people on the standard rate or below non-cashable vouchers for domestic goods and services that expire in, say, three or six months. They would have little option but to spend those vouchers. That would have been a much better idea.
	The second area where the fiscal stimulus could be managed differently and rather better concerns the question of affordability, about which there has been some discussion today. The Tory argument is that the level of public borrowing is extremely high, which it is, and that we therefore cannot afford the fiscal stimulus. There are two ripostes to that argument. First, the Leader of the Opposition has made it quite clear several times that he is fully in support of the automatic stabilisers, which give benefits to people when they lose their jobs, and that they should apply in the normal way during the recession. Those stabilisers, of course, account for the vast majority of the increase in borrowing. If we look at the Treasury figures, we see that the Budget deficit will rise from 3 to 7 per cent. of GDP precisely because of the automatic stabilisers. All that the Government have done is add a further 1 per cent. To say that we can afford 7 per cent. of GDP but we cannot afford 8 per cent., which appears to be argument of the Leader of the Opposition, is totally unconvincing.
	There is another answer to the central dilemma of alleged affordability that I fear neither Front-Bench team seems ready to contemplate. To be fair, the Chancellor did impose a higher tax rate in the pre-Budget report: 5 per cent. more for those earning more than £150,000, starting in 2011. I regard that as welcome, but it is little more than window dressing. The money raised will be only about £670 million, the rise applies to only 1.3 per cent. of taxpayers and the money will not start rolling in until 2011, whereas we need the money now.
	That approach would have potential if it were used more widely, however, and I shall give two or three examples. First, companies are currently given their CO2 pollution allowances free. After the EU Council last weekend, they will be required to buy permits by auction; even if they bought just 10 per cent. of those permits, the Government would raise up to £20 billion to £30 billion a year. Shell and BP alone this year made windfall profits calculated at more than £20 billion, and they are expected to make a further unearned profit of £9 billion over the next four years from being given those permits for free. They should be made to pay for them in full.
	Secondly, an extremely interesting report was written recently by the celebrated tax accountant specialist, Richard Murphy, called "The Missing Billions". It details precisely how the Treasury loses more than £13 billion a year from tax avoidance by super-rich individuals, plus a further £12 billion from tax avoidance by the 700 largest corporations. These are all official figures. In addition, the Treasury estimates that a further £8 billion is lost from artificial tax restriction measures, such as switching to another family member, an offshore company, a trust or a tax haven. On top of that, tax evasion, which is of course illegal, is reckoned to lose the country about £10 billion a year. If even half that total of £43 billion a year could be clawed back by a strengthened and better-resourced Revenue and Customs, the fiscal stimulus would not need to depend at all on unfunded tax cuts or increased borrowing.
	I have one more example. It is easy to be accused of sloganising, but this example is for real. The Inland Revenue shows that those paid more than £100,000 a year—roughly 2 per cent. of the population—now receive no less than £8 billion a year in reliefs and allowances. Pension tax relief alone costs the nation £36 billion a year, and higher rate taxpayers get more than half of that. If those subsidies to the richest 2 to 3 per cent. of the population—and after all, they are the ones who need it least—were significantly pared down in the current extraordinary circumstances, that could certainly generate another £10 billion to £15 billion a year for the Exchequer. Finally, it is estimated that if the iniquitous non-dom rule were done away with, another £5 billion or so would be available to the Treasury. For all those reasons, the fiscal stimulus is not only affordable, but it could be extended substantially if we needed to do that—and we may well—without any increase whatsoever in borrowing or unfunded tax cuts.
	The third way in which I believe the fiscal stimulus could be better managed concerns public expenditure. We know that the PBR indicates a proposed cut of £37 billion for the years 2011 to 2014. Instead of expanding public expenditure programmes as a potent stimulant of economic activity, it is proposed that public expenditure be reduced to staunch the ballooning Budget deficit caused by bank recapitalisation and unfunded tax cuts.
	What is really needed is a carefully targeted increase in spending in sectors of the economy that are threatened by sharp decline or even meltdown, particularly construction and housing. It could be paid for by increased taxes, national insurance contributions and reduced benefit payments that come from higher employment, by the tax surcharge on the super-rich and corporate tax avoiders that is clearly needed at the moment, and by an increase in the minimum deposits that the commercial banks are obliged to hold with the Bank of England, which could then be lent directly to the Government for new spending programmes. There are many options that I hope the Chancellor will look at—

Mr. Deputy Speaker: Order.

Stephen Dorrell: I begin by declaring an interest as a director and shareholder of a trading company.
	Harold Wilson famously said that a week was a long time in politics, but in 2008, three months has come to seem like half a lifetime. It is worth reflecting on how far we have travelled since 1 September. Three months ago, the Prime Minister was still bathed in a sort of jaded afterglow from his affair with prudence. It is ironic, given the events of last week, that at the beginning of the autumn, our most reliable ally in arguments in ECOFIN was Germany. The Germans saw the British Government as one of the most reliable advocates of the case for the liberal market economy, which is ironic given the statements that came out of Germany last week.
	At the beginning of September, the Chancellor retreated to a Scottish island and told us by newspaper interview that we faced the worst outlook we had seen for 60 years. In the ensuing three months, we have seen things happen that were unthinkable as recently as summer this year. The Government have emerged as a majority shareholder in the Royal Bank of Scotland, and they are a major shareholder in Lloyds. They swept through a sweetheart deal between Lloyds and HBOS, which has established a dominant position for that bank in the domestic mortgage market, and we have seen the Budget deficit balloon in a period of eight months. The estimated Budget deficit for next year has increased by £80 billion, from an estimate of £38 billion at the time of the Budget to £118 billion now. There has been a new initiative every day and, as my hon. Friend the Member for Tatton (Mr. Osborne) made clear earlier, we have seen all the weaknesses of government by headline. Ministers have not thought through the detail of one policy before moving on to announce the next.
	Against that background, I want to offer the analysis that two major policy developments have taken place during those three months: one with which I broadly agree and one with which I fundamentally disagree. I shall start with the analysis with which I broadly agree, and which led the Prime Minister and the Chancellor to call a press conference and say that the key priority facing the liberal economies of the world this autumn was the stabilisation of the banking system. That analysis led them to address the weakness of the balance sheet of the banks, and I believe that it was 100 per cent. right. There is no point in trying to build a future outlook for a market economy that does not recognise the centrality of the banking system to the allocation of capital within a capitalist system, and there is no point in talking about liquidity and getting credit moving again before the banks have been stabilised as institutions.
	The Government were right to put the emphasis on achieving that result, but they have not followed through that analysis, because having stabilised the banking system, we have then witnessed round after round of ministerial frustration. We have been told repeatedly that the banking system has not been freed up; well, of course, it has not been freed up. One simple policy move—strengthening the balance sheets—has not solved the myriad problems that built up in the banking system in the period before autumn this year. The ministerial drive to move on to the next initiative rather than focus on the core priority of getting the banking system moving again is one of the core weaknesses of the Government policy that has evolved during the autumn.
	My hon. Friend the Member for Gosport (Sir Peter Viggers) was entirely right to say that we cannot expect the banking system to function properly again until the issue of inherited toxic debts is seriously addressed. The banks have to fess up to the level of bad loans that they have and the number of bad assets that sit on their balance sheets. Until those are cleared out, they cannot raise new loans in the inter-bank market and get the banking system moving again. That is one element of the problem.
	Given the experience of what has happened to us during the past 12 to 24 months, far from being told by Ministers that we need a return to 2007 lending levels, we—and certainly lenders to banks—want confidence that the banks themselves have relearned the basic essentials of good, sound risk assessment in making lending decisions. The ministerial focus—the focus by the authorities—on recreating a functioning banking system was an entirely correct priority, and it is overwhelmingly the most important priority we face today. It is regrettable that Ministers have flitted from initiative to initiative, rather than focusing on the delivery of that central priority.
	As my hon. Friend the Member for Louth and Horncastle (Sir Peter Tapsell) said—he bemoaned the fact—one can cover things only extremely superficially in 10 minutes. I said there was one area with which I agreed and one with which I disagreed. I have focused on the former and emphasised the need for the re-establishment of effective lending at the centre of the capitalist system. However, I profoundly disagree with the implication in the debate today that there is somehow a choice to be made about whether we are in favour of or against a fiscal stimulus, and that one can merely opt for one side or the other of that argument without any assessment of the quantum of fiscal stimulus being advocated. That is why I sought to intervene on the Chancellor and did, in fact, intervene on the hon. Member for Twickenham (Dr. Cable).
	I wish to point out that, because of the choices that the Government have made to deliver fiscal stimulus and allow the stabilisers to work, and most importantly to build upon the inherited structural deficit that has built up over the past four to five years, we face, as we go into this recession—I agree with my hon. Friend the Member for Louth and Horncastle about its severity—a situation in which, according to the Government's own estimated borrowing plans, in 2009-10 net borrowing will run at 8 per cent. of national income, and that assumes that they do not overshoot. However, at the same point in the 1975-6 cycle, the Denis Healey chancellorship incurred a borrowing level of 7 per cent. of national income, which is 1 per cent. lower than that currently planned by Ministers. All those figures were set out in the pre-Budget report published by the Government.
	We are already planning higher borrowing than the level the Government had in the mid-70s—which led to the arrival of the International Monetary Fund—both in the new borrowing to be incurred during 2009-10 and in the planned level of net debt that the economy will bear by 2012-13. That is the peak level in the Government's plans, which show 57 per cent. of net debt to national income against a peak level of 54 per cent. in the 1970s. The argument is not whether we are in favour of or against a fiscal stimulus. Of course, we know that if the stabilisers are at work, Government borrowing will increase during a recession. Conservative Members are concerned about the attitude of Ministers, because having gone from being prudent and cautious and seeking to dress themselves in the language and clothing of caution, they now imply there is no limit whatever on the Government's capacity to borrow to restimulate the economy. Ministers are already planning to take us into a deeper hole than the one Jim Callaghan's Government took us into in the mid-1970s.

Frank Field: I wish to revert to the sombre note that the hon. Member for Louth and Horncastle (Sir Peter Tapsell) sounded, and the reality that he gave to the 1929 to 1931 slump by describing the impact on his family. He was too polite to remind the House that national income fell by 5 per cent. during the whole of that slump—a huge drop. He described the impact of such a fall in national wealth on employment.
	The results that the National Institute of Economic and Social Research published a few days ago for the last completed quarter show that national income is falling at 4 per cent. a year. One hopes that the cumulative effect will not occur, but the treacherous economic domain into which we are entering may be as serious, if not more so, than the inter-war slump. We are debating that today, and we need to deploy whatever talent we have to try to influence Government policy.
	In some ways I am more miserable than other hon. Members, because I fear that the Government do not have the room to manoeuvre that many Back Benchers suggested in their speeches. The amount of borrowing that we have to undertake and the potential troubling rate of inflation, which will dominate our economy, place genuine restraints on Government action.
	I do not believe all this guff about how we are about to enter a period of negative price increases. I think that, sadly, the opposite will occur. The projected levels of borrowing that the Government gave us in their pre-Budget report, which the right hon. Member for Charnwood (Mr. Dorrell) touched on a moment ago, are in the region of £150 billion a year for every year until the Government stop estimating. There will be real problems in unloading that level of debt in the gilts market. The amber signals will flash for the economy when long-term interest rates are pushed up, which will kill the chance of a quick economic recovery.
	I have also questioned elsewhere whether we will be able to unload that level of debt, and what that will mean for parliamentary and party government in this country. It is crucial that the leaders of the three major parties and the parties in Scotland and Northern Ireland should now be involved in talks about what we do if the worst scenario comes about. Of course we all hope that the best scenario will embrace us, but we also have a duty to think about the worst scenario.
	That is why Wednesday's debate on the VAT increase will be so important, because it will be a pointer to the markets. Nobody is now defending the 2.5 per cent. cut in VAT. It is like spitting in the face of an economic hurricane. The shops are already cutting prices by 30 to 50 per cent. If anybody on the Government Benches thinks that a cut in VAT will save one job in their constituency, I will give way now. Sensibly, nobody is rising to the challenge.
	Because of the restraints on the Government, we desperately need to look into how we best spend our money. We need to spend our money on extending credit to the firms that will go bust unless they can secure it. If hon. Members do not take the argument seriously enough, let me give an example. The cargo rates to China are now one tenth of what they were last year. The reason is not that China is not trying to suck in huge amounts of the world's primary resources, but that people who trade do not believe that their bills of exchange will be met. Companies will fold—they will fall like dominoes—unless the Government act.

Lorely Burt: Will the right hon. Gentleman give way?

Frank Field: No, I will not give way—well, I might in a minute.
	My plea to the Government is to rethink how we can get some of that precious £20 billion that will otherwise be wasted on the VAT measures into credit for firms, and thereby protect our constituents' jobs.
	The other thing that limits the Government's room for manoeuvre is inflation. For the Bank of England to say that inflation is not a worry, when the current rate of inflation is well over two times higher than the top of the target range, is moonshine. The spot market in oil is already prophesying that the price of oil will be significantly higher next year than it is now. Hon. Members nodded in agreement when the Liberal Democrat spokesman pooh-poohed the worry about the falling pound. A falling pound might give our exporters a greater chance, if there are markets in which they can sell, but a falling pound pushes up import prices and therefore adds worryingly to inflationary pressures, which are already high in this country.
	There are two huge restraints on the Government. I beg them before Wednesday, when we debate the order giving them the authority to make what now appears to be an absurd cut in VAT, to save that £20 billion and get it to companies, which may save some of our constituents' jobs. Before I leave this point, I too remind the House what the 1930s were like for someone who had to live through them. We now need to move together to try to get policies that will mitigate the terrible economic disaster that is about to engulf our society.
	In saying that, I welcome the welfare reform measures. We have a most talented Secretary of State for Work and Pensions, but he is being wasted by the absurd programme, to which he has nailed his colours, that says that if we talk tough and start roughing up claimants, they will somehow start going to work. Claimants know that Governments have spoken like that before, and then we hardly apply any sanctions.
	The one piece of information that I want to give the House, however, is this: one third more claimants were leaving jobseeker's allowance at the bottom of the last recession than were leaving it earlier this year, at the top of the boom. There is clearly something happening in our labour market to suggest that welfare reform is crucial. I make a plea that we do not get too serious about single mums, who actually have the job of raising children. However, there are large numbers of people under 25 who have never worked, who think that they have a minimum income from the Government, and who have no intention of working. That applies in my constituency and in every other constituency in the country.
	The previous Labour Government introduced the community programme, which was workfare by another name. It did some useful work in our constituencies. My plea is that we should scrap all this new deal stuff—the treadmills that people are on that punish them by sending them on training, instead of regarding training as a reward to get them out of the rut that they are in—and concentrate money on reinventing the community programme. We should say to young lads, "You've been on benefit for this long. There's now a job for you on the community programme. You either take it or you lose benefit." That would smack of serious welfare reform. Given our Secretary of State's talents, I hope that he will return to that theme before too long.
	The theme of this debate is, rightly, the sombre note that the hon. Member for Twickenham (Dr. Cable) and the hon. Member for Louth and Horncastle struck. We might be on the brink of an economic catastrophe, and we need to mitigate its effects on the lives of our constituents.

Stewart Hosie: It is a pleasure to follow the right hon. Member for Birkenhead (Mr. Field), and I am glad that he mentioned the pound. In the past few debates on the Budget and the pre-Budget report, I have commented on the balance of trade deficit. Last year we had an £87 billion deficit in goods and a total deficit of £70 billion in goods and services. Even with the collapse in the value of the pound sterling, the deficit is forecast to approach £50 billion every year over the next three years. That puts us in a serious position, and probably speaks volumes about the decimation of our productive capacity, and the loss of the 1 million manufacturing jobs that we have seen since Labour came to power.
	I want briefly to take the House back to the late summer, when the banking crisis came to the fore in the public eye. Politicians from all parties suspended their usual criticisms of the Government to build a consensus on the stability package that was designed to bring confidence back to the banking sector. I found it incredibly disappointing that within days, the Government began to use the crisis for narrow political advantage. As the crisis in banking became a crisis in the real economy, I was doubly disappointed that they were using that, too, as a partisan lever.
	The Government did that at the same time that they were saying that the global crisis—or the downturn, as it was described in the Queen's Speech—had nothing to do with them. Well, the crisis did not come from nowhere; it did not grow on a tree in the Amazon. Some of it was down to the lack of confidence and the risk associated with the American sub-prime mortgage sector, but it was also down to a combination of bad policy, poor regulation, a failure to act decisively and weak leadership on the part of leaders around the world, including our Prime Minister in the 10 years when he was Chancellor.
	The crisis was also down to a failure to learn lessons, and there were many lessons to learn, not least in the 2000 edition of the Bank of England's "Financial Stability Review", which gave a good assessment of the then recent banking crisis in south-east Asia. It showed, in both the macro and the micro measurements of how to forecast a banking crisis, any number of metrics, including significant property-related lending, the degree of reliance on inter-bank lending, and domestic credit growth. I know that the Bank collates this information and that it is reported, but I make a plea to the Government and to the Treasury Select Committee to look not at how the information is collected and collated but at how it is analysed, so that we no longer find ourselves in a position—as we did with the 2007 report—in which many of the risks are documented but then glossed over, in line with the Government's assertion that everything is fine and that they have done everything correctly.
	On the issue of burgeoning credit, among the many flaws that hon. Members have identified is the fact that too much credit was allowed into the system in the early part of the economic cycle, and there was too much public debt at the end of it. This has resulted in our having to borrow £300 billion more over the next three years and to triple the debt two years after that. The Government were effectively saying that there was nothing in the tank to stimulate the economy when the cycle ended—as it was always going to, because boom and bust never ended.
	I would also add the criticism that this Government changed the system of banking regulation to allow banks to overexpose themselves to weak business models. This is not a critique that says that we need either a heavy-handed regulatory framework or a soft touch. However, we needed a regulatory framework—we still need one now—that identifies and manages the risks properly. I shall come back to that in a moment.

Andrew Pelling: Would the hon. Gentleman regard it as reasonable for the Scottish people to be taking on all the additional debt that has been taken on by the UK? Would it not be better for Scotland to leave as quickly as possible, so as not to be burdened with a debt that is far too huge for it to carry?

Stewart Hosie: It would be useful for Scotland to be independent as soon as people want it to be. I will not be too distracted by the hon. Gentleman's question—but given that Scotland has had an average surplus for the past 30 years, while the UK is building up a £1 trillion debt, there is much merit in his argument, and I shall certainly look at it in more detail in the future.
	A further criticism of the Government is that when the banking crisis was at its peak, Ireland moved decisively to guarantee all deposits in its banking system, yet they delayed and dithered, which weakened the position further and brought HBOS and RBS to their knees. More stark than that, however, was the Government's failure to have on the statute book a proper system for dealing with failing banks, even though they began to look at this issue in October 2007, when the Northern Rock failure commenced. Since then, we have had the recapitalisation of the banks, the facilitated takeover of Bradford & Bingley, a massive expansion in liquidity provision, an increase in deposit protection, and the Government standing behind inter-bank lending. I welcome much of this, but we did not have the appropriate provisions in place at the time.
	Even the Banking Bill, which introduces a process for dealing with failed and failing banks, is not new. It was in the Queen's Speech, and will receive its Third Reading on Wednesday, but it will not be on the statute book until 2009. Given that we have a problem that started in the middle of 2007, yet we will not have a law to deal with it until 2009, the one criticism that we cannot level at the Government is that they have acted decisively.
	There is a paucity of any real economic measures in the Queen's Speech. One thing that struck me during the Chancellor's pre-Budget report speech, and again during his comments today, was that he said that we needed to improve the system of regulation and supervision. It is therefore extraordinary that he also said that he would not have the relevant proposals reported to him until spring 2009. A Bill will be introduced two years after the problems began to emerge and became widely known, and the regulations or changes that it contains might not come into effect until 2010.
	The fiscal stimulus in the emergency package has been widely discussed today, and we welcomed many of the measures in the pre-Budget report. However, the Government have said time and again that they were taking the lead and acting decisively—

Angus Robertson: Saving the world.

Stewart Hosie: Indeed. However, the stimulus package came after the announcement of the $150 billion package from the USA in February, and after the €18 billion plan announced in Spain in April. It also came after the announcements in October of the plan in France to fund 100,000 subsidised work contracts, and the $275 billion plan in Japan that would result in $20 billion going straight to Japanese households. The package also post-dated Germany's announcement in early November of a €50 billion plan, and even China's £375 billion economic plan. So there has been a great deal of puffed-up hyperbole from the world-savers on the Labour Benches, but this Government have not led, nor has the Prime Minister saved the world. Indeed, I think that the old adage might well apply to him: he is their leader; he must follow them.
	The UK Government have argued time after time that in this global crisis, we cannot insulate ourselves from the financial turmoil. That is absolutely true, but it does not allow them to abdicate responsibility for their part in the crisis. They look at this situation through a particular prism, which allows them to say that they have done everything right and that national debt was always low. That is ridiculous, because it was already a colossal £500 billion in the last Budget. It seems even more silly when we consider the hundreds of billions of pounds of private finance initiative liability, much of which is off balance sheet.
	In this year's pre-Budget report, we saw PFI liabilities to 2033 reported at £216 billion—an increase of nearly £30 billion since last year. That increase is set against an increase of only £4 billion in the capital value. That means £7 of repayments for every £1 of capital—and that is not even the end of the story. Secreted away on the Treasury's website is the full list assigned projects—reporting to 2048—involving another £24 billion of liabilities, which were not even included in the pre-Budget report.
	In economic terms, we have become used to the Government trying to hide things and making the wrong decisions. They reduced the Scottish Government's block by manipulating the English spending Departments' baselines. They hid their plan to raise VAT to 18.5 per cent. They subjected the whisky industry to two duty rises in a single year. They also kept on the books their plans for a real fuel duty escalator from 2010, and they are planning a £1 billion cut in Scottish spending when we are entering a recession and public expenditure must play an essential part in the stimulus package.
	The fundamental problem with the Government's economic plans in the Queen's Speech and the pre-Budget report is that they are based on wildly optimistic assessments. They assume an early exit from a short recession, and rapid growth thereafter. The International Monetary Fund suggests that the recession will be deeper, and the recovery longer and much more difficult. Even with £300 billion of borrowing over the next three years and a doubling of the national debt thereafter, the Government already have a black hole in the public finances that can be measured in tens of billions of pounds.
	My biggest fear of all is that this Queen's Speech was not concerned about the future of the economy. It was a thin, sparse, cut-and-run Queen's Speech from a Government who think that they have got their lines against the Conservatives bottomed out, and now want to play politics with the misery of millions of people as we head into a very deep recession.

Anne McGuire: Thank you, Mr. Deputy Speaker, for giving me this opportunity to take part in today's debate. I am pleased to follow the hon. Member for Dundee, East (Stewart Hosie), although he will not be surprised to hear that I disagreed with most of his analysis, most of his proposed outcomes and most of his politics. However, it was a pleasure to listen to him.
	This is my first Back-Bench speech since 1998, when I first became a Government Minister. I was a new MP for only a relatively short period of time before being catapulted into the Government Whips Office, so I did not have time to brush up on my technique; I feel as though I am among experts here, and I hope that colleagues and other Members of the House will understand.
	A lot has changed since 1998—not least the fact that, until recently, we had enjoyed one of the most consistent periods of growth and increasing wealth for generations. It is little wonder, therefore, that people in the UK have been startled by the recent turn of events. However, the greatest shock for many of us was not what was happening in America, but what was happening here in Britain, under our own noses. A British banking system had built its reputation over hundreds of years on prudence and propriety. Having been found out, it had apparently abandoned those principles and indulged in some of the most spectacular examples of speculation and risk.
	In Scotland, we were stunned to learn that our two iconic financial institutions, the Royal Bank of Scotland and Halifax Bank of Scotland, had not only been indulging in the same practices but, in doing so, had put their customers, shareholders and work forces—and indeed the banks themselves—in serious jeopardy. The Chancellor should be congratulated on the comprehensive action that he took. If it had been left to a so-called separate Scotland, as envisaged by some of my colleagues in the House, the banks in Scotland would have gone under because Scotland would not have been able to afford to bail them out.

John Mason: Will the right hon. Lady give way?

Anne McGuire: No.
	The business model proposed by the Scottish National party was the arc of prosperity consisting of Iceland, Norway and Ireland. If Members wish to make comparisons between Iceland and Ireland—and, indeed, to discuss Norway and what has happened to its oil fund—we should have a debate on the subject, even if we do not have it tonight. I do not want to talk about banking, however. I want to talk about maintaining the momentum of welfare reform, and making jobs and employment support available to those who need them most—those who have often been abandoned to live on benefits, either ignored or written off as being unable to make any contribution to the world of work.
	I know that, in a period of economic uncertainty and increasing unemployment, it is sometimes felt that we should not continue to invest in those who are most distant from the labour market, but I hold the opposite view. It was abandoning people on incapacity benefit during the 1980s and 1990s that left good folk all over the country on a benefits scrap heap with no support and little prospect of building up or maintaining the skills and experience that they needed, or—in some cases more important—maintaining the motivation that could return them to the world of work. That aspect would be understood by my right hon. Friend the Member for Birkenhead (Mr. Field). It involves not just motivation, but maintaining the discipline of getting up in the morning.
	In the late 1990s, we had to take up a challenge. For many individuals, families and communities, work was an alien concept because the necessary support had not been provided. That is why I welcome the ideas in the White Paper that will form the basis of the legislation outlined in the Queen's Speech. We have seen a transformation in the welfare state over the past 10 years. We have seen developments underpinned by the strengthening and deepening of our anti-discrimination legislation, not least in regard to disability.
	Over those same years, we have seen a greater focus on reducing welfare dependency. My right hon. Friend the Member for Birkenhead may be cynical about parts of it, but it should be recognised that some of the work done through our welfare to work programmes has brought more single parents on to the labour market, making a real impact on child poverty. It has also encouraged older people to retrain for different kinds of work, and helped more disabled people into jobs.
	However, there are still some who have been left behind. More than 2 million people are on incapacity benefit—people with long-term health conditions or disabilities, who all too often are judged on the basis of their disabilities rather than their abilities. Like the Secretary of State, I believe that no one should be left out or written off, and that approach is recognised by many welfare organisations representing disabled people which have voiced their opinions on the proposals. They have some problems with the details, but they generally accept the underpinning principle that no one should be written off. I hope that the Secretary of State was pleased to note the comments of the Royal Society for Disability and Rehabilitation—RADAR—on the "right to control" proposals in the White Paper.
	The real difference of opinion is on whether, in return for the increased community, society has the right initially to encourage people but ultimately to insist that they take up the opportunities that exist, and on whether, if they refuse for no apparent good reason, they should be able to do that without consequences. I understand many of those concerns. The legacy of welfare reform in this country is based on the experience of many people during the 1980s and 1990s, an experience of cuts and the demonising of people on benefits. That is why I welcomed the Secretary of State's clear assurance in his statement last week that his welfare reform programme was about rebalancing the rights and responsibilities of the state and the individual, and emphasising that the state, as well as the individual, has responsibilities.
	It is important that those receiving incapacity benefit are not abandoned to a life of inactivity as a result of the tyranny of the sick line which states "unfit for work". Many people are not unfit for work, but unfit for the kind of work that they have been doing. If Members truly believe that work is good for us and that it is the best way out of poverty, why do we not encourage all people to consider all the options and opportunities? Why should we, as a society, make people feel that they have no further contribution to make to the world of work?
	There are people who are now in work because of the intervention of the new pathways to work approach. According to that approach, we cannot impose a template on our welfare system, and must understand that in the case of those who have been out of work for many years a range of issues should be taken into account. I was delighted when the Secretary of State described the breadth of the investment that he was prepared to make in people, rather than casting aside those who needed the greatest investment. I hope that his words will give some comfort to organisations that fear that this is all about benefit cuts rather than support.
	Conditionality means more than just cutting the benefit at the end of the line. It is about investment, and the investment highlighted by the Secretary of State in the access to work programme is a tremendous example of the way in which the investment of resources can enable people to go out to work. Labour Members should take great pride in the fact that the resources in that programme have increased more than four times since the Government came to power, and are set to double again. However, we must recognise that there are great gaps in our provision. There is no easy access to rehabilitation: people often cannot obtain the support that they need when they need it, so that they can make a full recovery and return to employment. What happens to people if they cannot obtain advice quickly?
	The Labour party was built on a philosophy of fairness, but the philosophy also recognises that alongside fairness, we—as a society, as individuals and as a community—have rights and responsibilities. I believe that our welfare reform programme balances those rights and responsibilities, and I am delighted that it has been included in the Queen's Speech.

William McCrea: It is a pleasure to follow the right hon. Member for Stirling (Mrs. McGuire). She made a thoughtful speech which is worthy of careful consideration. It was preceded by—as usual—an excellent speech from the right hon. Member for Birkenhead (Mr. Field), who has a tremendous passion for the issue of welfare reform and a great deal of personal knowledge of it.
	There is much to be welcomed in the welfare reform programme, and it is important for us to deal with it in the context of today's wide-ranging debate on the economy, pensions and welfare. We need to realise that there are those who genuinely wish to obtain work, and that it is important to enable people to get back to work or into work. Our problem is the number of job losses throughout the country as we enter the depths of a recession. It will be difficult to get people into work if the jobs are not there for them, and that is another challenge for us to face.
	We must also bear in mind that there are those who do not want to get into work; we should be honest about the fact that there are those in society who desire to remain on benefits because they receive less for going out to work than they do from being on benefits. We must look into that, and the Government must tackle it, because it is vital that every person who is capable of working is given the opportunity to do so—and, indeed, is encouraged to do so, as it is very good for those people personally and for their families that they have gainful employment and therefore a reason to get up in the morning.
	The hon. Member for Gosport (Sir Peter Viggers) said that society has two problems in that we are both overtaxed and over-governed. I have much sympathy with that point of view. I certainly believe that we are overtaxed, and many of those taxes are indirect taxes that are slipped in—they come in unawares. Our constituents loathe such indirect taxation, whereas direct taxation is open and lends itself to being debated. We are also over-governed; business and society are over-laden with bureaucracy. That is another issue that a Government of whatever political hue must tackle.
	I want to focus in the remainder of my speech on the economy. It is true that many of our citizens in the UK have enjoyed prosperity and good times. However, we are now facing a situation of crisis proportions, and it is a situation that is deteriorating. The economic challenges we face are perhaps tougher than any previous such challenges, and the younger generation have certainly never experienced a similar situation. The credit crunch and recession are realities, and it is true that worldwide influences have played a part in that recession. Job losses are also a reality, as are fear and concern within communities. We are, therefore, facing tough economic circumstances, and many fear that we are facing a very deep recession. Although it is true that the situation has evolved and worldwide global pressures are placed on us all and on Government, the Government must also accept their responsibility. Responsibility can be shared, but accountability must be accepted by those who are in authority over us. At such times of crisis, therefore, people look to Government to give them a very definite lead.
	I listened with interest to the advice of the hon. Member for Louth and Horncastle (Sir Peter Tapsell). He talked about the knockabout debate that goes on in the political arena, and he encouraged us to take our debates beyond that. In listening to this debate, I have heard Members of different parties claim that the Prime Minister or the Chancellor said this and that the Leader of the Opposition or the shadow Chancellor said that—and Members will then refer back to the paper record of events and find out what they actually said. Where does that take us? We are facing a very serious situation and the long-term economic prosperity of our country is at stake. Therefore, we must ensure that the steps that are taken go towards solving the current situation and laying a solid foundation for the future prosperity of our people.
	I have spoken twice on the measures that have been taken: in an intervention in a recent debate, when I asked the Chancellor a question; and during Prime Minister's questions last week, when I asked about the banks' situation and encouraged the banks to pass on the cuts in the cost of borrowing to both their domestic and business customers. Many small and medium-sized businesses are facing a financial crisis, and some are going to the wall. They are going bust not because the basis of those businesses is not good and their plans are not solid, but because they do not have the financial wherewithal to progress their business and face the challenges of this particular time. Therefore, we once again ask the Government to take further steps to ensure that our banks, which have been saved by the taxpayer, pass on the interest rate cuts. I trust that the Chancellor and the Prime Minister will do that.
	In Northern Ireland, there is also a situation involving the Presbyterian Mutual Society. The Government should work closely with Arlene Foster, Minister of Enterprise, Trade and Investment in Northern Ireland, to protect fully the millions of pounds belonging to Northern Ireland savers that were lodged with that society. Therefore, I once again encourage the Government to ensure the availability of bank credit. That has not been made available in the way we should be able to expect by the banks that have been bailed out by the taxpayer. This is the biggest single issue affecting businesses, and I trust that the Government can persuade—and, if necessary, force—the banks back to more normal lending. That would be of benefit to our economy. Also, although the decision to cut VAT by 2.5 per cent. was one way of passing money into people's hands, we will have to wait and see whether the people spend it.
	We must rebuild confidence. There must be openness and frankness in this debate. There are two sides to that. There must be openness concerning the fiscal stimulus, because any such stimulus will have to be paid for; that is the reality. However, it is also reality that if there is not a fiscal stimulus, there will have to be cuts. We had better be open, therefore, and I believe we need to lead from the front within the community. There must be openness and frankness. There is no single bullet; we must employ all our talents together. I appeal for a collective wisdom from across the House to ensure that we do what is best and what is in the interests of long-term stability, by facing the present challenges while building for the future prosperity of our people.

James Plaskitt: In this debate so far, every Member who has spoken on the economy has touched on the issue of banking and the need to stabilise the banking system. We have heard broad support for that from across the Chamber. I, too, want to focus on banking, but to go one step further than just thinking about the banking system in our own country. I want to look at some of the root causes that led to the current problems in the banking system not just here, but across the world.
	When my right hon. Friend the Prime Minister was in the Chamber reporting back to the House on the G20 meeting he attended, he referred to fundamental reform of the supervision of the financial system, and we understand that G20 teams are working on a series of papers to turn that into reality, which will be presented to the G20 at its next meeting in March. I welcome the fact that work is being done on the international regulation of banking, but I have some concerns that the timetable for that work to be done is extremely rapid while the issues that need to be grappled with are truly huge. The slight risk is that we might achieve only marginal change, whereas, on the evidence of what has just happened, the situation suggests that we need to go much further.
	My right hon. Friend also referred in discussing these matters to "revising the Basel accords", and I want to take a moment to look at the Basel system. When what is now called the Basel II system was agreed in 2004, it was launched in glowing terms and it was said that
	"the revised framework will promote the adoption of stronger risk management practices in the banking industry".
	That claim now seems very hollow indeed. The Basel II agreement was a replacement for the original Basel agreement, which had proved to be not up to the job. However, I am afraid that, after a decade of negotiation, Basel II, which has been launched relatively recently and is only just beginning to come into effect, is already dead on arrival. The sub-prime crisis has shown that the model envisaged in Basel II is already inadequate and therefore beyond tinkering with. If we are really to address the problems in the international banking system, we need to look for something with much more substance than that.
	We can see now that the Basel system displays a significant number of weaknesses. First, it comprises what has been described as "soft law". In other words, it is in no way legally binding. Its status is not even permanent: there are no permanent staff behind it to support it. The second major weakness of the Basel approach is that it is not at all about compliance; it is only about supervision. Nor does even Basel II—the so-called strengthened version—address at all the issue of systemic risk. In fact, it very much reflects the G10 banking culture that dominated all the negotiations that led up to the agreement. That culture is not relevant to the many parts of the international banking system that are now caught up in the consequences of what is unfolding.
	The real problem is that the Basel system depends on more than 100 different national regulators. Here, the Financial Services Authority is the first to interpret and then to apply the guidance given in Basel. The system's other weakness is that it concentrates almost entirely on the issue of capital requirements, which was also an obsession throughout the decade of discussion that led up to the eventual agreement. It says very little—in some cases, nothing at all—about the problems of banking liquidity, about leveraging, about reputational issues or about the use of off-balance-sheet activities. Yet, as we have seen, those are some of the major faults in the system that have given rise to the current problems.
	Most of the difficulties that I see in the Basel II system—this is why I suggest that it needs fundamental reform, rather than mere amendment—rest essentially on internal risk-basing. That was the absolute principle that the banks demanded throughout all the negotiations, and that Governments in the end conceded. However, there are four main problems with internal risk-basing, which are now painfully apparent after what has happened. First, it allows banks with complex risk-taking models to select their capital adequacy levels from a range of options. Secondly, it allows banks to use their own measures to determine the degree to which they are exposed to risk. Thirdly, it allows banks to allocate their own risk-weighting to their assets, including those that are off balance sheet. Fourthly, it allows banks to use their own estimates of the probability of any one of their assets going into default.
	What are the consequences of such a system, based as it is on internal, risk-based assessment? The system says that it is fine to reduce capital charges on what it declares to be lower-risk lending. What example of lower-risk lending does it cite? It cites residential mortgages. Well, we have seen the consequences of doing that. We saw another consequence when Adam Applegarth appeared before our Treasury Select Committee. He said that it was Basel II compliance that suggested to him that it was fine for the Northern Rock bank to increase its dividend, rather than shore up its levels of capital.
	As I said, Basel II has only soft-law guidance—nothing harder than that—which has been shown to be wanting in the conditions that we now face. Basel II therefore displays fundamental weaknesses in terms of a system of governance or regulation of international banking, which is now what we are seeking. In truth, what we have is a global financial structure supervised by a balkanised system of regulation. That is, and is always going to be, an unequal struggle, and international standards will always come off worse in that conflict.
	That is the situation that we are in, and I am afraid that that system will result in a race to the bottom in terms of in-country regulation, because regard for national competitive advantage will always trump regulatory concerns in those circumstances. We have seen, through the negotiations that led up to Basel II and the way in which it has been applied in the last year or so, that Governments in the end generally cave in to the banks' demands, because that architecture allows the banks to use the "going offshore" threat that resonates so much with Governments.
	So the question is: if the G20 is looking again at the Basel agreement and is working on proposals for the spring of next year, what do we need to do to put in place a system that is appropriate for the challenges that we face, and which can move beyond the platform that Basel II itself presents? What we really need is regulation or supervision on the scale of that which we are trying to regulate or supervise; that is the imbalance that must surely be corrected. The logic of that points to a very different approach from the current one. The gaps that need to be filled are fairly obvious. We must have a system that addresses systemic risk.
	Banks can now prove beyond all doubt that some of them—many of them—are too big to fail. The underwriting that Governments have now put in place, which was of course the right thing to do, has introduced what is called "shadow equity" into the system, and with it a potential moral hazard. However, because it is there, I see it as giving Governments the right to insist, if we are taking forward a new model, on some global minimum standards of regulation that must apply across the international system. Those must go beyond simply the issue of capital adequacy. We have got to address liquidity, leveraging, securitisation, off-balance-sheet activity, accountancy standards and incentive structures, and we must have early-warning devices. At the moment, Governments around the world rescuing their banks have the upper hand in this argument, but as time passes the terms of trade may shift back towards the banks and away from Governments.
	The hard truth is that if we are not to revisit this situation at some future time, we need some pooling of regulatory sovereignty, giving powers to an international supervisory or regulatory body that is on an appropriate scale to supervise or regulate that which needs to be regulated.

Several hon. Members: rose —

Mr. Deputy Speaker: Order. Before I call the next Member to speak, let me say that a large number of Members are seeking to catch my eye. It would be most helpful if Members took less than their allotted 10 minutes; then, I will try to call as many Members as I can.

Robert Syms: First, I declare my interest in the Register of Members' Interests: I am a director of a family property and building company.
	We live in difficult, almost uncharted times, and I am not sure that we have the solutions to what will be a difficult few years ahead. Ours is an open, liberal economy with a very large financial sector that benefits and has benefited us and has created lots of very well-paid jobs. That means that we will be affected by what happens worldwide. However, it is also legitimate to say that there are signs that we have gone into a difficult period rather less prepared than we could have been. A lot of that goes back to one of the first decisions that this Government made, which was to give independence to the Bank of England. Two things then occurred: the Financial Services Authority was set up to regulate banking; and a lot of the big disasters occurred under that system, which has also given us occupational pensions, the Equitable Life situation and the various other things that have gone wrong in the past few years.
	I rather think that the previous system, in which the Bank of England regulated the City, was better. I remember that there was a banking crisis when I left school in 1973 or 1974, when many secondary banks went out of business. Slater Walker had problems. Several other banks went out of a business, a lifeboat was formed and the banks sorted the problem out before it became a major one. Changing from a rather more informal system, whereby there was a flow of information, to a much more formal clipboard-type of system has not worked that well. I am aware that the City is a far larger and more international organisation than it once was, but I cannot help feeling that the FSA's watch has not been a good one.
	The other relevant issue is the independence of the Bank in setting interest rates. On the whole, that has received plaudits over the past decade, but I begin to wonder whether the Bank's independence and its setting interest rates has done us any great favours, given that we now have one of the biggest financial busts. I say that because it is clear that there should have been a squeeze and higher interest rates rather earlier. When 120 per cent. mortgages are available, when people are borrowing four or five times their income, when the house-price boom is clearly unsustainable and when first-time buyers cannot get into the market, that is bound to have an inflationary impact on the economy. Therefore, the Bank of England should have acted earlier.
	Against that backdrop, it was a little foolish of the Government to continue spending up as they have. The profile of our tax receipts—a lot is City-related and a lot is housing-related—means that they should have done what the Germans did: run a fiscal surplus. One of the reasons we are going to find things very rough and why our room for manoeuvre is rather more limited is because we spent. The Government argue that they spent on schools, hospitals and so on. There were many good things that the money was spent on, but given the rough weather that we have encountered, their decision was foolish and it means that they are far more limited in what they can do.
	We have had some discussion about whether the VAT changes will make a lot of difference, and set against the discounting in the high street, I am somewhat sceptical that they will. Indeed, many businesses are finding that there are quite a lot of costs attached to altering VAT. Poole borough council, among others—indeed, all the local authorities that we represent—has spent quite a lot of money making the necessary alterations.
	The most important thing is that we deal with the credit markets and with the banking system, because credit still is not flowing. I commend the proposal of my hon. Friend the Member for Tatton (Mr. Osborne), because we must get credit flowing to businesses. If credit does not flow to businesses, either through banks or through some support for lending, no matter what the Government do we will have a sharp downturn that will result in very high unemployment.
	I am sceptical about the VAT measures, but if the Government are serious about achieving a fiscal stimulus, they could do a lot worse than to start building some council housing. There is a need for housing, there are a lot of unemployed building workers and land is available because the private sector is building almost nothing. That would be a logical sector in which to provide a stimulus and it would leave a lasting legacy, as opposed to opting for a temporary VAT cut, which will not do what the Government want it to do.
	There may be an argument for a fiscal stimulus, but what the Government are doing will not have the impact that they hope. As we all know, the difference between Government spending and tax revenues are two very large figures. If the Government are being a little optimistic about the outlook and the profile of this recession, the real figure might be rather larger than 8 per cent of gross domestic product in terms of debt and we would start to get into areas of difficulty. The right hon. Member for Birkenhead (Mr. Field) warned about inflation, and I agree. In particular, if the pound is very soggy, we will import quite a lot of inflation and will end up with higher rates of inflation and a downturn—classic stagflation—which would be very difficult indeed.
	Like many Members, I have constituency cases. Some of the people I see who still have housing problems are those who were affected by the downturn under the previous Conservative Government and who perhaps lost their homes because of negative equity—that has a long-term difficult effect. One of the major changes in the British economy is that individuals carry a substantial amount of debt on their credit cards and mortgages—rather more than they might have done 10, 20 or 30 years ago. My real fear is that if unemployment increases beyond 2 million and towards 3 million, many of the people who lose their jobs will be carrying very heavy debts and will find that their long-term prospects are difficult. I welcome what the Government have announced on assistance with mortgages. It will be very valuable, because the long-term impact on many families who lose their jobs and find themselves with major debts against the home or against credit cards when they expected to have a major income will be horrific.
	What has happened in the global markets is that a lot of wealth has simply disappeared, because people do not know what many of the debts that banks hold are worth and there is no confidence within the market. That cannot wholly be filled by Governments, and a major adjustment will have to be made. The head of Barclays was probably right today when he talked about house prices falling by 30 per cent., and the sooner prices fall so that we can get to the bottom of the market, the better it will be in terms of the economy's starting to readjust.
	One relevant factor is that whereas years ago first-time buyers used to get into the market at about 26, in recent years they have done so at 34 or 35. That is partly because of high house prices, but it is partly because of lifestyle choices—people getting married later and wanting to travel more; they want to go to Kathmandu and so on. When we get to a point where both the housing market adjusts to a lower level and those many young people are feeling more secure in their jobs because they have survived a wave of unemployment, there will be the prospect of people getting back into the housing market and our getting back to a more regular, sensible rolling housing market again. There is some hope, but the housing market has been distorted. A world in which the City paid out bonuses last year of £16 billion and where Russian billionaires buy properties in Chelsea has lifted a lot of the housing market in the south-east. Simply because people will not receive that level of bonuses in the next two or three years, the housing market will have to find a bottom. That will come when first-time buyers do what people have always done—get married and want to buy homes. I hope that the adjustment in the market is quick and that we get back to a more organised market, rather than have a slow fall, and it looks like that is happening.
	We have a very unusual recession. People have benefited over the past few years, because as house prices have increased they have been able to withdraw equity for homes, cars, holidays and sometimes for their businesses, but now we have reverse of that process. It will be very painful for those who lose their jobs—we hope that there will not be too many of them—and for all of us in dealing with the consequences of this very serious situation. I commend the proposals of my hon. Friend the Member for Tatton. I fear the worst, but hope for the best.

Harry Cohen: First, let me say a word about Afghanistan, because it feeds into this debate. It looks like we are going to commit more troops, and I say do not do it. Since the invasion of Iraq there has been a catalogue of failure, and we cannot really carry on as though the missed opportunity has not been missed, because it has. We are losing the hearts and minds of a growing number of the population, mainly because of the random bombing of civilians by our US allies. There has also been a chronic failure in terms of development, because infant mortality has risen—War Child's October report talked of a quarter of children dying before their fifth birthday, and that is the third highest level in the world—and the UN development ranking gives only three countries a lower ranking. We cannot afford an unproductive war such as this. Joseph Stiglitz's book called it "The Three Trillion Dollar War". That figure is likely to increase if we go down this path. Given the figures that the Select Committee on Defence has produced, and the cost trends and the extra troops, it is likely to be £5 billion a year, and we cannot afford that.
	This situation is compared with the 1920s and 1930s, and it is said that the war got the world out of the slump. That is a misreading, because at the end there was greater debt, massive asset destruction and countries were devastated. That took a long time to pay off, and there was a continuation of rationing. What is relevant is that the 1929 great crash also came from unbridled, uncontrolled capitalism. It led to a depression, massive unemployment, misery and hardship for millions, and from there, social upheaval and fascism. Fascism promoted rearmament, which put people back to work, but for conflict.
	Elsewhere, the lesson came from Keynes and Roosevelt that government can maintain employment by public works and the welfare state, but admittedly at a cost of increased borrowing and debt. However, it is not unreasonable to do that. In fact, it is essential. Local authorities built swimming pools, parks and halls, all paid for over 60 years, and it is okay that those benefiting from them years into the future pay towards them. So, it is not a case of putting future generations into hock.
	I am not opposed to a fiscal stimulus, and I think that the VAT cut was a clear signal to encourage trading. It is certainly more appropriate in this context than what the Tories propose—a council tax cut, which is irrelevant in this context. There needs to be more money for those on low incomes and on pensions, but the emphasis should be on capital programmes such as transport infrastructure, new schools, the NHS and new homes. The role of local authorities should be boosted, particularly in building new homes—the point has been made about council houses.
	It was right to take a stake in the banks, particularly the commercial banks, to provide stability and to implement our essential socio-economic agenda of getting funds to small businesses and home owners, but regulation needs to be substantially improved. There is no clearer example of that than today's story of Madoff, with his $33 billion fraud. The City of London is grossly inadequate in these terms. I wrote to the City at the time of the events involving Conrad Black and said, "You wouldn't have got a prosecution in this country, the way you are operating." Amazingly, the US is better than the City of London at getting prosecutions. I have not had a reply from the City.
	The Tories are still against regulation; their party wants the light touch, or no regulation, that brought us into this mess in the first place. The Tories use the level of debt and borrowing as a political argument to do nothing—laissez-faire economics—but it also goes further: it is the basis of a political position that says for the well-off, "Our share of the cake, whatever it is, is more important than maintaining or having a larger cake overall." That is an argument for inequality and it writes off a large chunk of the population as victims of unemployment or other aspects of the recession. The Tories leave them abandoned.
	There has been overdependence on financial services in the UK, but that has been made worse by the profiteers and speculators thinking of themselves as the lords of the universe who should not be subject to regulation because they are the wealth producers. That is combined with the Chicago school Friedmanites, who are determined, as an ideological doctrine, to eliminate and privatise the state. Naomi Klein has described that very well in her book, "The Shock Doctrine". The Tories have been the cheerleaders for both those schools of thought, and they have not changed.
	For the future, we need more emphasis on productive industry and less on financial services. The emphasis should be rebalanced that way. The bankers have been saved, but Woolworths staff have not. That is unfair. We must have an industrial strategy that protects productive jobs. We need control over who makes credit and in what way. The Government cannot abrogate that matter and give it to the private sector in an uncontrolled way. There needs to be tight control of fancy financial vehicles such as derivatives, which end up worthless. There needs to be accountability and transparency, including of offshore transactions. The state has to be the basis of stability and the guardian of the public interest. That cannot be left to the private market and its free-for-all, fraud and failure. Taxpayers must get their money back whenever the banks renew profitability. There must be no swift return to the privatisation of all profits. I say this: taxpayers are more likely to get their money back with Labour than with the Tories.
	The Bank of England recently estimated global bank losses at £2.8 trillion. The banks clearly need time for write-offs and state investment is buying that time. In the process, savings and shareholdings are saved from being at zero value, or worthless. It is appropriate for that to apply to the commercial banks—alongside, I might add, tighter regulation, an end to the bonus culture, requirements for them to do their job properly and a shift-out of the top level failures—but I am not convinced that it is so appropriate for the investment banks and hedge funds. By the way, Roosevelt did not want anything to do with them and would not make them legal.
	A principal factor about which I am concerned is the pension funds that those investment banks and hedge funds hold. They have been rendered worthless, but those institutions also have them at the end of the queue for payment. The state could take them over at what they are worth now, and then enhance them. Savings could be protected by the scheme that is in place already. However, we could let the rest of the banks—those investment banks and hedge funds—go down. It could be cheaper and fairer in the long term and it would remove that worthless, stultifying debt from the system, thereby allowing the chance for new capital to emerge. Those banks should look to their previous managers and owners in the courts to recoup their losses.
	Those are my feelings on the way forward.

Alistair Burt: It is always a pleasure to listen to the hon. Member for Leyton and Wanstead (Harry Cohen), even if we do not follow all his arguments all the time. Bearing in mind what he said, I wonder how he managed to sit on his hands over the last 10 years, as the very rich became even richer under his Government. No doubt he has an answer, and a charming one, as always.
	Just as a dog will ultimately take on the characteristics of its owner, or vice versa, a Queen's Speech tells us something of the character of a Government. A tired and rather thin Queen's Speech tells us a little about a weary animal that simply wants to pack up and go home to the fire. The rationale for this Government left when Tony Blair walked out of the door, and since then the Labour party has struggled to convince anyone that it had any intention of doing anything in government except be there to keep the Tories out. I must admit that that has a Machiavellian logic to it, but it probably is not what the public are looking for.
	Before I comment on the subject of today's debate, may I make a couple of brief remarks on other matters in the Queen's Speech? The snappily named Local Democracy, Economic Development and Construction Bill legislates for, among other things, the transfer of planning powers from the unelected regional assemblies to unelected regional development agencies. I have not met anyone connected with regional development agencies who wants those powers. They see them as a poisoned chalice and a way for the Government to get out of their failed regionalisation policy. I hope that the Bill perishes either in the Lords or here.
	The policing, crime reduction and airport security Bill will, among other things, finally provide coherence in the provision and costing of airport security, but not before some £2 million has been lost to Bedfordshire police due to the Government's decision four years ago to cut expenditure on Luton airport—a major national port of entry and departure with obvious security interests. The Government's inexplicable decision to cut the funding and ask Bedfordshire police to take up more of the burden has increased costs for a hard-pressed police authority. A lot could have been done with that £2 million, and I hope that during the passage of the Bill an amendment will be carried that provides a suitable vehicle to repay that cost.
	Although the Government's continuing efforts on welfare reform are belated, they are to be commended. The Government seem to be accepting some of the analysis that my Opposition colleagues advance consistently, and which Labour Members, most notably the right hon. Member for Birkenhead (Mr. Field), occasionally mention. As a former Minister for disabled people, I welcome the improvements to the access to work scheme. Those improvements, as well as the improvements to ensure that those with disabilities have rather more control over their own lives, follow the path laid down so well by Sir Nicholas Scott during his tenure in that important post. I am pleased to see those developments continued by the Government.
	Two further points on welfare reform are worth mentioning. First, any social welfare reform now carried forward without being fully informed by the work of my right hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith) and his Centre for Social Justice will be off track. His comprehensive pulling together of so much statistical information on our damaged communities has done much to mould opinion in recent years and to help us recognise that attempts to move people from benefits into work and to promote economic independence cannot achieve success unless they are accompanied by an understanding of the extent of family and relationship breakdown and of its impact on communities.
	Any time spent with those who work on the front line of a country that now exhibits clear signs of social apartheid suggests that while a fortune is spent on the consequences of family and relationship breakdown, too little is spent on supporting relationship structures in the first place and trying to prevent their breakdown later, particularly when children are involved. As recent court cases have further revealed the depth of that brokenness, we need somehow to find national consensus on tackling a problem that will last, Government in, Government out, over the next 50 years. I suggest that my right hon. Friend's work provides an excellent basis for that.
	Secondly, I would be interested in seeing an amendment made to the welfare reform Bill. When I visited a community furniture re-use project in my constituency recently, the organiser raised the issue of community care grants. The project deals with a number of clients with addiction issues. When community care grants are paid in cash, there is an understandable temptation and risk that they will not be used for the purpose intended. My local project has suggested to the regional Jobcentre Plus that vouchers should be given rather than cash, and those involved in the project believe that vouchers are in use in some parts of the country. The response from the regional Jobcentre Plus was that to give cash to some individuals and not to others would be rather unfair.
	During the passage of the Bill, I wonder whether the Government might consider running some more pilot projects, relegating the concept of "fairness" and giving preference to an understanding of the individual needs of a client. Individual decision making on whether to give money or a voucher to someone who is addicted might require them to be given a voucher, which would be better all round. I would be grateful if the Government could think about that.
	Finally, let me move on to the economy. It is clear from many speeches made by Members of all parties that, whatever the intentions of the Government and Whitehall, the financial injection into the banks is not getting through as we would have intended. The chamber of trade in Biggleswade tells me that banks are approaching business customers to tell them that even as base rates are reduced, they are holding businesses to the rates of interest on their loans or credit facilities that were originally agreed. There is a widespread belief, notably shared by the right hon. Member for Birkenhead, that little has been added through the £12.5 billion spent on VAT reduction. Most constituents are aware of price reductions elsewhere, as businesses adopt the traditional practice of dropping the price to sell the goods.
	There is a further pressure affecting recession in areas such as North-East Bedfordshire. Earmarked for significant building in the future, the area has now a large number of building schemes that are now at best on hold or might be shelved. In addition to the schemes, the section 106 funding that goes with them has been taken into account in the local authorities' plans. If the section 106 plans fall foul of the economy's collapse, the agreements will either be renegotiated or lost and local authorities will find themselves looking for new money to fulfil promises that they have already made to the community. Under the straitened circumstances that they are in, they will be unable to do so. That will put further pressure, which is currently rather underrated, on local economies.
	The Government's attitude to the fall in the exchange rate is puzzling. I have twice attempted to ask both the Prime Minister and the Chancellor of the Exchequer what they believe the reasons to be for the fall in the value of sterling over the past few months. My questions, and those of others, are now met by a standard reply, which is that the Government do not give a "running commentary" on the value of the exchange rate. That is not what we are asking for. Asking for an explanation of what has happened is not the same as asking for a running commentary on what is happening now or might happen tomorrow. The now Prime Minister worked that out when he was shadow Chancellor, when he said that a weak currency was evidence of a weak Government. The probity of asking about the value of exchange rates did not worry him then.
	There are three answers to the question. The first is to say that the world has got things completely wrong, that it is misjudging our economy and that everything is dandy. To say that while praising the rest of the world for ostensibly following what the Government are doing would put the Government into difficulties, so that answer is not given. The second answer to the question of what has happened to the exchange rates is that there has been a snap answer to a series of sudden problems in the British economy; things will pick up next year and people will realise that they have made a mistake. That is not a bad answer, but it indicates that there are some problems at present, so it is not an answer the Government give. The third answer is that the world is completely right: we are in a total Horlicks, the judgment is correct and we are very sorry. That is the right answer, but again it is unlikely to be given. Any of those three answers would be better, however, than simply saying, "We are not giving a running commentary." Perhaps the Minister who replies to the debate might be given the opportunity to answer the question.
	As a nation, as individuals or as a people, the answer to the economic crisis cannot be that we should just go back to where we were. We cannot ask people to return to over-borrowing, not saving and being offered money that they cannot afford to take. They must not be urged to buy things they cannot afford. Consumerism as the answer cannot be where we want to put people after all this is over. Whatever reflections there are after the recession, one of them will surely be to try to understand that the concept "enough" should mean more to us than the concept "more". At some stage, we shall have to face that as a nation, rather than being asked to go through this whole cycle again.

Lyn Brown: I shall consider some of the means that we need to adopt if we are to eliminate child poverty in the United Kingdom by 2020, ensuring that the Government's ambitious aim becomes a reality for the people on low incomes whom I represent. The Government are rightly proud of their progress in tackling child poverty thus far, but I fear that in the capital there is still much to do. At present, one in four of London's children live in poverty, almost twice the national average: 650,000 children—a figure equivalent to the entire population of Sheffield.
	London is a wealthy city, but that wealth and strength is in massive contrast to the entrenched pockets of deprivation that can be found across the capital. To achieve the child poverty target, co-ordinated cross-departmental action is required. We need a London strategy if we are to reach our target, as the capital faces a unique set of challenges: high rates of worklessness, staggeringly high housing costs and a relatively low skills base. Additional challenges are posed by a highly transient population—transient through necessity, not choice.
	The national minimum wage has had a real impact on reducing child poverty across the country. It was a just and morally right policy to pursue and has resulted in positive advancement for many workers and families. However, I fear that the national minimum wage has not had the same impact for Londoners. Many of my constituents work their guts out for the minimum wage, which is peanuts in an area where the costs of housing, day-to-day essentials and child care are so very high.
	The notional hourly rate of the London living wage is £7.45, but at present about 10 per cent. of full-time workers and a massive 45 per cent. of part-time workers do not receive that rate. The issue needs to be addressed. My next point will be controversial, but we need a debate on whether we should consider the introduction of regional differentiation in the minimum wage to address the needs of the capital. Wage rates matter when we are trying to deal with poverty.
	I listened with great interest to the contribution of my right hon. Friend the Member for Croydon, North (Malcolm Wicks). I represent constituents in a borough where the challenge from long-term worklessness, ill health and disability is as entrenched as anywhere in the country. Nearly 7,000 people in my borough have been receiving incapacity benefit for more than five years, and 4,710 receive IB as a result of mental disorders. It is right to remind the House that Department for Work and Pensions research on the pathways to work pilot found that
	"the most important factor in finding work was how health conditions were perceived and managed."
	The research also found that the imposition of sanctions—not work per se—worsens existing health problems, provokes new mental health problems, has a worse impact on the most deprived and isolated people and rarely improves positive engagement:
	"Pathways In-Work Support advisers commonly identified customers with mental health conditions, such as depression and anxiety or low self-confidence, as the most significant customer group".
	That document goes on to describe a series of representative cases in which people have struggled to take on work, have been exhausted, panicked, and drained of confidence, and have sometimes failed. For those with physical health conditions, the dominant issue was managing to fulfil their work obligations without experiencing pain or worsening their health condition. It was reported that clients often develop mental health or emotional difficulties such as depression or low confidence as a result of their poor physical health and the impact on other aspects of their life.
	I applaud the White Paper's support for a vision of personalised conditionality, matched by personalised support. I cannot emphasise too much the importance of cross-Government working to explore how we can integrate health, work and skills services for people with mental health conditions.
	As I am sure that the majority of Members would agree, adequate, safe and affordable housing is essential for good mental health, and central to the fight against child poverty. The announcement of an £8 billion programme last summer to deliver 180,000 affordable homes has given hope to many young families. Families living in grossly overcrowded homes often fail to thrive. Many tensions are created and the children struggle to keep up at school.
	I am concerned that the Mayor of London may prioritise public subsidy of low-cost home ownership projects. I accept that many families in my constituency aspire to become home owners in future, but Housing Corporation research shows that London has a surplus of those projects, with almost 10,000 shared ownership properties standing empty in London because Londoners cannot afford to buy them and the banks will not lend on them. In monetary terms, that represents more than £600 million-worth of public investment currently doing nothing to help the homeless and overcrowded families who need it most.
	While I am on the subject of overcrowding, I would like to remind the Government of the promise, made during the progress of the Housing and Regeneration Bill, to introduce secondary legislation to change the definition of overcrowding to a bedroom standard. The Under-Secretary of State for Communities and Local Government, my hon. Friend the Member for Hartlepool (Mr. Wright), committed to introducing such secondary legislation. Committee members were told that secondary legislation could be introduced in 2009. Well, 2009 is upon us.
	Having encouraged the new Minister for Housing, who attends Cabinet, to act on overcrowding and home building, I urge her to assist the Government in their aim of poverty eradication. I also ask her not to consider any late amendments to the Bill that would downgrade the security enjoyed by council and housing association tenants. Stories in the press suggested that she might do that. Perhaps the stories were placed to bounce my right hon. Friend into backing plans to scrap secure and assured tenancies, but thankfully, the lady was not for bouncing. My hon. Friends and I were greatly reassured by her willingness to dismiss those back-door briefings as
	"speculation ... to put it mildly."
	She has pushed back the publication of the housing reform Green Paper until next spring, and that shows that she has a grasp of the real issues to do with tenancies and worklessness.
	John Hills's detailed research, published last year, made it clear that the reasons for disproportionate rates of worklessness among those in social housing are complex and manifold. Anyone who doubts that need only look at how much higher the rates of worklessness are among homeless families placed in non-secure, expensive temporary accommodation. Housing benefit often drives people further from the job market and deeper into the poverty trap. That is why I welcome the commitment by my right hon. Friend the Secretary of State for Work and Pensions to undertake a housing benefit review to look into the difficulties associated with the housing benefit taper. The consequences of no reform in that area will certainly have a negative impact on the Government's commitment to halving and then eradicating child poverty in London.
	Before arriving in the Chamber today, I had an extremely productive meeting with the Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Burnley (Kitty Ussher), in which we discussed that very issue. I am grateful to my hon. Friend for her time and her intelligent analysis of the extremely problematic issues. I am genuinely hopeful that a solution will be found to help families who cannot afford both to work and to keep a roof over their heads, and the heads of their children.
	My contribution today has, of necessity, been short, and short contributions can mean that arguments are not fully developed. However, I hope that I have highlighted some of the challenges and complexities that will need to be addressed if we are to ensure that the Government meet their commitment to eradicating child poverty by 2020.

Andrew Pelling: First, may I declare that I am an RBS pension holder—I hope to be paid a pension at some stage—and I hope that my NatWest overdraft will continue to be provided. More importantly, I do some work in the City, and I provide services to customers such as the World Bank and Scandinavian local government funding agencies, which are involved in the debt markets that I shall discuss.
	I was pleased by the remarks of the hon. Member for Gosport (Sir Peter Viggers) about the attractions of pursuing the bad bank solution. There are strong arguments for pursuing that means of dealing with the difficulties in the financial markets, which may be more cost-effective than the routes pursued by the Government. I was taken with what the right hon. Member for Birkenhead (Mr. Field) said about the importance of the Government being cautious about the way in which they spend their money. What is happening is a bit like a hunter who has been disturbed in the middle of the night by a bear outside, and bravely jumps out and starts shooting in the dark, not entirely sure that they are going to hit the target, and in great danger of running out of ammunition by the time the time the bear is upon them. The Government have acted with great vigour and rigour, but unfortunately, they may not always have the right solution.

Bob Spink: My hon. Friend is discussing the financial market, and he will be as concerned as I am about the Madoff swindle, which could cost HSBC and the Royal Bank of Scotland alone a sum approaching £1.1 billion. How will that impact on hedge funds, and what should the Government do about that right now?

Andrew Pelling: It is important that we debate that issue on the day on which the extent of the Madoff scandal and fraud has come to light. At over $50 billion, it is much bigger than the amount of the fiscal stimulus proposed by the Government. To provide confidence in the hedge fund industry in the UK—my hon. Friend is right to emphasise the fact that the crisis is attacking the financial industry here in London—it is important that proper work be done as a matter of urgency to audit hedge funds in the UK.
	The Government try to make a great merit of the importance of fiscal stimulation. I strongly believe that the fiscal approach must be the premier approach compared with monetary policy, but fiscal stimulation must be more effective than the 5p reduction in VAT on the £2.35 price of a Costa coffee. The reduction in VAT to 15 per cent. has a minimal effect on the price of the coffee. Normally, one would expect to buy nine coffees before being given one free, but now one must be particularly hyper, consuming 47 cappuccinos at £2.30 each before seeing a tangible return on one's discounted morning pick-me-up. Perhaps that is what the Government meant by stimulating the economy.
	Unfortunately, the figures that the Government face in the crisis are serious. Despite the determined way in which Ministers have acted since the crisis fell upon them in the autumn, someone was definitely asleep at the wheel when it came to regulation. UK bank assets more than doubled—up 125 per cent. in seven years—and one of our leading banking institutions had a leverage rate of 60:1. The Government make bold statements about the fact that it is their intention to ensure that the extent of lending in 2007 is maintained but, unfortunately, that is a quixotic aim, because it was the securities market—securitisation—that provided liquidity for the economy, and we must bear in mind the fact that over the past seven years, the amount of annual liquidity provided to the markets by UK securitisation rose from £13 billion to £257 billion, so £240 billion a year has gone out of the lending market as a result of the destruction of the securities market. We must acknowledge just how challenging the Government's task is. It is difficult to criticise the banks for not lending when one realises that they are in fact lending more, but the securities market has been destroyed, so what we as Members of Parliament see at constituency level is a huge contraction in the credit supply.
	The Government need to think carefully about how they set about providing additional liquidity. I am disappointed by the announcement today by the Government that it is their intention to extend further Government guarantees for the public issuance of debt by banks. It must be remembered that British banks using the guarantee are issuing that debt at the equivalent of 1 per cent. more per year in interest rate costs than the equivalent LIBOR gilt yield rates.
	That has the effect of greatly increasing the cost of that money to the Government. It would be better for them to secure funding for the UK banks 1 per cent. more cheaply through issuing gilts directly, and lending that money directly to the banks. That would give the Government greater control over the banks, which we as Members of Parliament crave, and would not allow the standing of Government debt to become so debased by being issued at the ridiculously high rate of LIBOR plus 90 basis points.
	The sum of £250 billion is what the Government intend to allow the banks to borrow using the guarantee of Her Majesty's Government, but we could theoretically save 1 per cent. a year on that borrowing by deciding that that borrowing should be issued directly through gilts. Over the three-year period that these bonds are allowed to be issued, that would save a total of £2.5 billion, which could be better spent on schools or hospitals, or perhaps even paying for a minute part of a further recapitalisation of a bank. It must make sense in the context of the approach that is being taken. I had a great deal more to say, but many other Members wish to speak in the debate, so I am happy to conclude now.

Adrian Bailey: It is a pleasure to follow the hon. Member for Croydon, Central (Mr. Pelling), who gave a short, reasonable and measured speech.
	I shall concentrate on the economy and the impact on my constituency and region, the west midlands. Economic historians will debate for many years the culpability for the current international economic crisis. The central problem seems to be that international finance and the mechanisms and tools used to move money round the world have outstripped the national and international supervisory and regulatory bodies. It ill behoves Opposition Members to criticise the Government for not regulating the finance market properly, when the Opposition were advocating total deregulation of the market.
	In the end the public will judge us not on who is culpable, because it clearly is an international crisis, but on what the Government do about it and what mechanisms they are prepared to adopt to deal with the problem—interest rate monetary policy, or monetary policy plus fiscal stimulus. From my discussions with electors and above all with local manufacturers, it is clear that a combination of the two is needed.
	People in my constituency and the black country as a whole remember the monetary policies of the early '80s, which were devastating—and happened within an international economic context far more benign than the problems with which we are dealing at the moment. The manufacturers whom I meet do not talk about balanced budgets. They talk about the availability of credit and needing loans, as well as about needing rate relief on empty properties which the Government have now delivered. Above all, however, those manufacturers say that there is no point in providing companies easier access to credit if those companies do not have an order book to respond to. Order books can be built up only if the economy in general is stimulated. I believe that the VAT £12.5 billion stimulus will provide that stimulation, as will the public works that are being brought forward.
	At the end of the day, small companies face diminishing order books and the necessity of laying off workers. The only legacy of the 1980s that the manufacturers remember with any regard is, ironically, the one interventionist Thatcherite measure—the short-time working directive, when workers were subsidised for not leaving the employment of a small company. It is absolutely essential that we preserve our manufacturing base. If we do not have any industry when the upturn comes, we will not be able to take full advantage of it. Areas such as mine in the west midlands are in many ways a litmus test of the sort of policies needed to keep our industrial base intact.
	I turn briefly to the car industry, which represents about a quarter of the manufacturing output of the west midlands. Land Rover-Jaguar alone employs 13,000 people, and including the automotive components industry, car industry employees make up a huge section of the west midlands work force. The Government have rightly intervened in providing money for the banks; that was essential to stop our national finance system seizing up. However, over and above that, we have to recognise that vital industrial sectors may need supporting in a way that has not so far been envisaged. We have tried to get cheaper credit through the banking system, and we may need to consider industry-specific measures designed to provide cheap loans from the finance arms of the car companies, to stimulate the purchase of cars, which are such a vital and strategic part of our industrial base. Similarly, we may have to look to measures to preserve the cutting-edge research and development in our car industry.
	Although I praise the Government for their work so far, I finish by reminding them that that work is not over. The issue is about saving not just the banking sector but our industrial sector; so much of the work done with banks will be lost unless we do the latter. I ask the Government to take that on board, and—if necessary—to be bold.

Philip Dunne: It is a great pleasure to follow the hon. Member for West Bromwich, West (Mr. Bailey), who is a worthy champion of the motor manufacturing industry. Many of the small manufacturing companies in my constituency supply some of the major motor manufacturers in his, and we work together on those issues.
	I should like to start by injecting a note of blame. Some other hon. Members have chosen not to blame the current economic crisis on the Government, and that surprises me. Today, we heard the Chancellor delivering a speech while presiding over what is, as one Minister admitted today, the worst recession. The Chancellor is presiding over a currency in free-fall and a public sector debt that is to double in the next five years. Yet despite the Government's having been in power for more than 10 years, Labour Members say that that is not the Government's fault. I find that extraordinary.
	It is particularly extraordinary to claim that this is all down to global causes and that other economies are suffering alongside the UK, because none is suffering as badly as ours. Sterling has fallen further and faster than any other major currency this year. Why is that, and why has it happened particularly in the past few weeks? It is because currency markets increasingly lack confidence that this Government will be able to borrow what they need to borrow, by their own admission, over the years to come. That is why the currency is collapsing.
	The Chancellor was not prepared to admit, when challenged today, that he is doubling the public sector debt under his watch. If the gilt markets are not prepared to fund the Government's borrowing, two things could happen: interest rates will rise to the point whereby that funding becomes available or the Bank of England will print money to enable the Government funding to be established. Either way, we are heading for significant deflation or stagflation, neither of which Labour Members should feel any comfort about. Commentators are now asking themselves whether the UK will have to follow the path of the Seychelles or Ecuador by defaulting, or they are starting to talk about returning to international agencies to bail the economy out of a prolonged period of Labour Government, as has happened before.
	I should like to talk briefly about the banking crisis. Government measures have led to a succession of errors helping to compound the problem, in our economy in particular. We have heard much talk about the regulatory problems being not of our making. I remind Labour Members that the new banking regulatory system, which was put in place 10 years ago by the then Chancellor, now Prime Minister, and the then Chief Secretary, now Chancellor, was found wanting a year ago when the Northern Rock crisis took place and the Financial Services Authority itself admitted that it had not regulated properly.
	When Conservative Members argued in favour of the independence of the Bank of England, we were not arguing in favour of the FSA taking over banking regulation—that was not how we saw it then or see it today. When Northern Rock got into difficulty last year, the Government were unable to take the swift decisions necessary in order to deal with the crisis as it arose. Despite ministerial denials ever since, they dithered and shilly-shallied and did not take the opportunity to place Northern Rock into the safe hands that were on offer.
	The bank recapitalisations of this autumn have also been poorly executed. As other Members have said, they have been funded by an extraordinary series of preference share issues which have provided terms that would prevent anybody else from participating, so should those banks require funding in future there will be no sources of capital other than the Government available for them to dip into. The recapitalisation has created a structure in which, by definition, only money from the Bank of England or the Treasury will be able to continue any sort of bail-out. It is not helping the real economy, because the banks have been faced with conflicting signals. On one hand, the excessive borrowings of the past decade widened their capital adequacy ratios dramatically—accentuated in some cases, as the hon. Member for Warwick and Leamington (Mr. Plaskitt) said, by the Basel II regulations, the classic example being Northern Rock. The expansion of the loan books had been so significant that, whereas in the 1970s the gross assets to common equity ratio was in the order of 15 times, in recent years it has been in the order of 90 times, on the narrow definition of common equity.
	There has been a dramatic expansion of risk in bank balance sheets, which is why many of the assets that banks invested in require recapitalisation when they turn sour, either out of profits, which banks find extremely difficult to generate in the current environment of falling interest rates, or capital, which will not be forthcoming other than from the banks. The banks are being encouraged to lend by the Government but at the same time they are trying to generate capital to cope with the asset write-offs that they can see coming, and that circle cannot be completed.
	Time is running out, and I shall allow other hon. Members to speak.

Jim Cunningham: I was very interested in what the hon. Member for North-East Bedfordshire (Alistair Burt) had to say—he is not in the Chamber any more—because I seem to remember that he was the Minister who introduced the Child Support Agency a long time ago as part of John Major's Government. He may cast aspersions on others tonight, but some of us have long memories, and people have been trying to put the CSA right ever since.
	I represent Coventry, and we in the west midlands have been concerned about manufacturing for a long time. Over the years, certainly under the previous Government, the industrial base was eroded to the point where the west midlands now provides in the region of 25 per cent. of this country's manufacturing. We are obviously very concerned about that, and when we consider that the west midlands produces about 10 per cent. of this country's wealth, we see that it is an area to be reckoned with.
	I support the measures taken by the Government. They had to take those measures; when we look at history or at documentaries about the 1930s, we can see why the Government have to do what they have got to do. Any measures that the Government take will never be perfect, but nevertheless, they have to get the central thrust of what they are doing right or, as some people have predicted, we could end up in a situation comparable with that of the 1930s.
	That takes me to the issue of Northern Rock, an issue which the Opposition have always ducked. Northern Rock gave the public a snippet, as it were, of what could be around the corner, which could be compared with the 1930s. Let us remember that people were queuing up to withdraw their money from Northern Rock, and that a number of societies were in the same boat. Let us remember that the Opposition dithered when we eventually took some action to stabilise that situation, and that they criticised us for doing so. When we listen to the Opposition, we are led to believe—the previous speaker just said it—that everything is the Government's fault. There is a big, wide world out there. Apparently, we are insulated from that, and everything we do has no bearing on the world, but in actual fact the world has a big bearing on us. The situation started about two years ago, when India and China were forcing up commodity prices. The Opposition conveniently forget about that little thing that happened two or three years ago. It had a knock-on effect on oil prices, and we all know the story of how those prices then went through the roof.
	We must not forget that the major problem started with mortgages in America, and others cannot duck the truth, as much as they would like to, because if they do not recognise it, they will never get a solution to the problem. We could give a litany of what has happened since then. The Government have been operating in a difficult situation, trying to persuade people that their course of action is the right one, with little support from the Opposition. As I remember, their support lasted only 10 days before the Leader of the Opposition withdrew it.
	Let us take the other argument that the Opposition use quite a lot, which is that we did not prepare for a rainy day. We did, because we followed a Tory budget for two years—people tend to forget that. For every pound that was paid in tax, 50p of it was to pay off Government debt. We also invested for that rainy day, when we were able to, by spending on schools and the health service. The Conservatives cannot run away from the fact that we did invest for a rainy day. We also invested in modern technology and research and development, which our major industries rely on. Universities rely on that money, because it is part of their seedcorn funding. We also invested in skills and a number of other areas of the economy. At the end of the day, to suggest that the Government did not prepare for a rainy day is slightly misleading to say the least. It is totally misleading to say that if everything had been right in this country, somehow everything else in the world would have been okay, because the fact remains that the problems started outside this country, and I have highlighted a few examples of that.
	Earlier today, the shadow Chancellor said that the Conservatives cared about families, decent housing and so on, and that Conservative local authorities would do the same sort of thing. However, in Coventry, for example, they have spent £40 million out of £70 million of reserves and they are introducing £9.4 million in spending cuts, which could affect 189 jobs, such as neighbourhood wardens. It will also affect youth services and library hours, and lead to cuts in certain areas of education, foster and social care. I know that my hon. Friends are waiting to get into the debate, but I wanted to highlight Coventry city council proposals and suggest that it look at them again.

Mary Creagh: It is a pleasure to speak after my hon. Friend the Member for Coventry, South (Mr. Cunningham), who represents the area where I went to school in the 1980s. My family weathered the terrible recession of that time and saw the devastation of the car industry—the plant at Massey Ferguson, the Alvis tanks factory and the car body factory were all closed.
	A series of devastating public sector spending cuts resulted in teachers' strikes, and many of my friends and I missed out on large parts of our education. Opposition Members perhaps have not suffered a teachers' strike, but when that happens, children go into school at the beginning of the week, pick up their work for the rest of the week, do it quickly that afternoon and go off to play for the rest of the day. As a 12-year-old, it was a recipe for happiness, but I am sure that it had a devastating and long-lasting impact on many of the people with whom I was at school. I would also like to share the fact that in 1982, I had to buy my own O-level physics textbook. In 1982, £12 was a lot of money for a 14-year-old who earned £1.50 from a paper round. Many of us can remember other recessions. The recession of the 1980s was perhaps not as desperate as that of the 1930s, but there was 20 per cent. unemployment in Northern Ireland and 16 per cent. unemployment in north-east and north-west England.
	I shall consider two issues: the temporary reduction in VAT and, if time permits, the welfare reform proposals. The Government have done the right thing with the temporary cut in VAT because it will reduce prices and improve consumer spending. The measure is not about people buying 25 cappuccinos, as the hon. Member for Croydon, Central (Mr. Pelling) rather facetiously implied, but about 25 people who would not otherwise buy cappuccinos doing so. We need to allow people to keep making the discretionary expenditure that they would otherwise not make. Increasing the higher rate of income tax to 45 per cent. for those earning above £150,000 is a bold, positive and progressive move by the Government that will ensure that the pain of this recession is shared by the few, as well as the many—to paraphrase a famous new Labour phrase.
	It is important to bring forward spending on large infrastructure projects because that will enable construction companies that have been badly affected by the recession to remain in business. It is crucial that £3 billion is invested in our motorways, social housing, schools, hospitals and energy efficiency. The phrase of the hon. Member for Tatton (Mr. Osborne) that we did not fix the roof while the sun was shining has become rather hackneyed, but I can tell him that, as a Labour Government, we have invested money in repairing schools and hospitals. Again, Opposition Members might not have had the pleasure of going to an outside lavatory at their school—I am sure that the Eton Rifles and the Bullingdon boys were not allowed to do that—but in some schools, the classrooms were out of action for years at a time because of leaks in the roof.
	At Pinderfields hospital, Wakefield, which I visited two weeks ago with the Secretary of State for Health, a £250 million contract has been put in place and the infrastructure—the bones of the hospital—are in place. That hospital had not received any major building investment since almost the second world war—and that investment had consisted entirely of prefabricated portakabins. When I visited to celebrate the NHS's 60th birthday this summer, we went to a children's ward where the beds had previously been lost because the rain was getting through a hole in the roof. That is one of the challenges that doctors, nurses and care professionals in Wakefield faced in delivering health services, but now we are talking about the roof in Pinderfields hospital being physically fixed through a £250 million investment from the Government.
	Last week, my right hon. Friend the Secretary of State for Children, Schools and Families announced new money for play areas. Wakefield will receive £1.1 million of investment this year, rather than in 2010-11, in 22 areas. In Kirklees, which I also represent, and the wards of Denby Dale and Kirkburton, £2.2 million will be invested in 28 play areas and two adventure playgrounds. I am determined not to let the Tory-Lib Dem coalition on the council allow my rural children to miss out.
	It is also good that we are providing £15 million for free debt advice, which has been an issue in Wakefield. People trying to access debt advice at Wakefield's citizens advice bureau currently face a three-week wait, which I raised with Treasury Ministers in the House in October. That demonstrates the nonsense of the Opposition, who published a paper in the summer calling for the deregulation of the mortgage market. We are all now only too aware of the dangers that such an approach would bring.
	I have only 20 seconds left, so I will miss certain sections of my speech, but I want briefly to mention welfare reform, which is vital. It is difficult to get people back into work during a recession, but we cannot allow worklessness to become an ingrained habit, as the Conservatives did in the '80s and '90s. They want spending cuts, but I say that it is better to increase the national debt than to have 200,000 people losing their homes or one in 10 people unemployed. It is better that the national debt should rise than that entire sections of the manufacturing and coalmining industries should be left to wither on the vine: doing nothing is simply not an option. We in the Labour party have an action plan. Only time will tell whether it will be enough, but the "no action" plan from the do nothing party would seriously let down the people of this country.

Mark Lazarowicz: If anyone had any doubts about the clear contrast between the approaches of the main parties towards dealing with the financial crisis and the recession, those doubts will not exist after today's debate. As my hon. Friend the Member for Wakefield (Mary Creagh) pointed out, in spite of repeated requests and challenges in this debate, neither Tory Front Benchers nor Tory Back Benchers have proposed any programme to deal with the situation. All we have heard is an occasional reference to the loan guarantee scheme, which was hardly the centrepiece of the speech that the hon. Member for Tatton (Mr. Osborne) made earlier. I wonder whether that proposal is rapidly going the way of the employment creation scheme, which the Conservatives proposed a few months ago, but which seemed to disappear from their agenda once it was dissected by the Federation of Small Businesses.
	The ability to access the credit needed to continue operating is essential to all businesses. Ensuring that banks can continue to provide businesses with support and with access to credit is crucial, but only as part of a package. It is certainly not the only solution or the panacea that it would appear to be to the Conservatives, from the limited suggestions that they have made this evening. I speak to small businesses in my constituency, and access to credit and the rates that some are being charged for overdrafts and loans are central to their concerns. Above all, however, what both small and big businesses want are customers. Businesses want people to buy from them. Retailers want people to go into shops—that is where the reduction in VAT is important. Businesses in the non-retail sector want people to buy their products and services.
	The public sector also has a vital role to play in providing a stimulus to the economy in our communities. Not surprisingly, those of us who speak regularly to businesses, as most of us do, will report that businesses with a relatively high proportion of their trade deriving from the public sector are weathering the downturn better than many others. This underlines the particularly important role of public sector spending on infrastructure in the present circumstances. That is why the boost to such public sector spending is a vital part of the programme, and I welcome the priority that the Government have given to it. We have seen the emphasis on investment in infrastructure in the short term, but we now need to turn to a strategy for continued investment in the medium term as well. Whatever the trajectory of the present recession might be, it is clearly going to take some time to recover from the difficulties that we now face. I certainly support infrastructure investment as a major theme of the Government's activity, and I look forward to more of the same in due course.
	The need for investment in infrastructure is particularly important to those of us who represent constituencies in Scotland. In England, we see new schools and hospitals continuing to be built, and we shall see investment in transport and other key sectors of the economy. In Scotland, however, we face a different situation. Although we can see that kind of investment in building projects going ahead in our constituencies at the moment, the public sector investment programme will begin to peter out in the next year or so, just at the time when we need a boost to infrastructure investment in our communities.
	Over the past year and a half, the Scottish National party Government have been ideologically pursuing their so-called Scottish futures trust, a device that is meant to bring investment in public sector facilities in all our constituencies, but that has, to date, not delivered one single brick, despite the spending of about £30 million in preparatory work. Not one project has yet been agreed, and even the SNP Government themselves have now accepted, in their transport strategy that was announced last week, that some of their major programmes cannot be funded by the mechanism that they had hoped to use. As a result, not only transport programmes but many other capital spending programmes—which are vital not only for the facilities that they offer but to the building industry—are now subject to a great deal of uncertainty.
	As I have said, there are signs that the SNP Government are beginning to rethink their approach to public sector investment in Scotland. I welcome that, and if we are indeed seeing a new sense of reality in the SNP Government about the need to invest in public sector infrastructure in Scotland, not only the Labour party but the construction industry and business in Scotland will welcome it. At the end of the day, we can have our debates here in the House of Commons, in which the Opposition parties will understandably challenge the actions and policies of the Government, but when the UK Government and the Government in Scotland are of different political colours, it is essential for those of us who represent Scottish constituencies that they work together. We must ensure that the initiatives taken by the Secretary of State for Scotland to bring together key organisations in the poverty sector are followed up by similar initiatives in infrastructure investment and in the financial services industry in Scotland.
	I urge the Minister to convey to the Secretary of State for Scotland the need for the initiatives that have been introduced to deal with poverty in Scotland to be taken forward into the infrastructure industries and the financial services industry, so that we can adopt the joint approach that this Government want to see. We must ensure that the SNP Scottish Government are challenged to join us in meeting the needs of our communities in Scotland.

Mohammad Sarwar: The UK and, indeed, the wider global economy are entering an exceptionally difficult and uncertain time. This global economic downturn has, in one way or another, affected the lives of many businesses and families throughout the world, including those residing in the United Kingdom. Although the problem started with the sub-prime housing market in the United States, globalisation caused the problems to spread quickly and to affect the world economy, placing a tight squeeze on the availability of credit. That has resulted in the collapse of several major international financial institutions, and an accompanying collapse of market confidence. Unprecedented sums of Government finance have been provided to assist in the recapitalisation of our banks. At the same time, mortgage approvals and lending in general have declined, and home repossessions are on the increase. Interest rates for businesses and families are still fairly high. Lenders are slow to pass on their cuts to consumers, and when they finally do, they do not pass them on in their entirety.
	Furthermore, a substantial number of small businesses say that their overdraft charges are higher than they were a year ago despite central bank rate reductions. Interest rates for loans, credit cards and store cards are typically very high, and have remained so despite the recent rate cuts. All that has compounded the problems of a slowing property market that is also currently suffering a decline.
	The pre-Budget report set out a positive and much-welcomed plan of action in the shape of the substantial £20 billion fiscal stimulus package to be introduced between now and April 2010 to counter the effects of the recession and to aid the economic recovery. The package includes a permanent £600 increase in the income tax personal allowance, a temporary reduction in VAT, no significant changes in vehicle excise duty until after 2010, the bringing forward of child benefit and child tax credit increases, and a one-off £60 winter payment to pensioners on top of an increased winter fuel allowance payment.
	I commend the Government for having addressed some of the key economic issues. They have provided greater protection for bank depositors by guaranteeing deposits of £50,000, reaffirmed the commitment to investment in public services, and taken steps to pump liquidity back into the market. I also welcome the introduction of the new charter for mortgage holders, announced last week, which is designed to prevent hard-working families from having to face the fear of home repossession.
	The charter provides three practical safety pillars for home owners: an agreement by the banks to hold back repossession proceedings until three months after the home owner falls into arrears; a new pre-action protocol making it clear that repossession is to be pursued only as a last resort with free debt advice available in every court and judges expecting lenders to exhaust all other options first; and the opportunity to defer a proportion of interest payments for up to two years, with the Government guaranteeing banks against the risk of loss from such deferred interest payments.
	The charter has been welcomed by market specialists, and is testament to the pledge of my right hon. Friend the Prime Minister to provide real help for families during these very difficult times. In contrast, the Leader of the Opposition has shown that not only does he not understand the nature of the economic problems, but he does not care about lessening its possible effect on families.
	However, we must be prepared to go further in our efforts to assist businesses and families. We must ensure that the banks play their part in meeting the needs of consumers in what is proving to be a very demanding time for our economy. At present they are failing to do so, as they have not resumed lending to the levels seen before the credit crunch. They have also been unwilling for a second time to pass the full amount of the Bank of England interest rate cuts to consumers. My right hon. Friend the Prime Minister has rightly said that that is unacceptable. It is reassuring to see a new lending panel chaired by the Chancellor and Lord Mandelson set up to monitor lending levels, but, given the emerging evidence that overdraft limits for small businesses are being reduced and, in some cases, withdrawn completely, it is more essential than ever for us not to allow viable businesses to fold owing to a lack of credit.
	We must take a more robust approach. The banks should be fully aware that if they fail to act in accordance with the strings attached to their rescue plan, we will seriously begin to consider some of the suggestions recently made by market specialists to the Treasury Committee. They include introducing credit market control measures and appointing Treasury officials to sit on banks' executive boards. I am not a fan of bank nationalisation, but if the banks do not behave, the option of full nationalisation should be adopted to make them start lending again.

Roberta Blackman-Woods: I shall endeavour to keep my remarks brief, but I want to say a few words about the economic measures outlined in the Queen's Speech and the pre-Budget report, and also to touch on other key issues in the Government's programme.
	I think there is consensus on the fact that we are in very serious economic times, but there certainly is not consensus on how to deal with that. I strongly support the Government's commitment to act decisively to make sure that we enter economic recovery as soon as possible. That is in stark contrast to the approach of the do nothing Tories. The Government are offering real help for those who are being affected by the economic downturn, and I especially welcome the measures aimed at families, pensioners and small businesses, such as the £60 pensioner's payment, increasing child benefit, more loans and deferred tax payments for small businesses, bringing forward £3 billion-worth of capital projects and, more recently, credit card protection. I know that that will be welcomed by my constituents, many of whom have recently come to my surgeries to talk to me about the actions of credit card companies.
	That is all real action to help. Apparently, however, the Tories would rather we followed their path and did absolutely nothing. We in Durham still remember the "unemployment is a price worth paying" Tories and we do not want them back. At a time of economic hardship, a great deal of attention is rightly focused on how to deal with economic problems, but we must also pay attention to the role that public spending can play in reducing unemployment.
	My hon. Friend the Member for Leyton and Wanstead (Harry Cohen) was right to focus on the role that public spending can play in providing infrastructure. We need this investment in infrastructure to continue. In Durham, we are currently consulting on the building of two new schools; one is to serve Durham city and is jointly sponsored by the county council and the university. This is a necessary investment for the future, not wasteful public expenditure as the Tories would have us believe.
	Education is crucial to economic development. From Sure Start for pre-schoolers through the school system and on to apprenticeships and university courses, we must continue investing in training and education, because that prepares our young people and adults for the future economy. That is why I very much welcome the Government's children, skills and learning Bill, and in particular the attention that is being put on apprenticeships as a key measure in helping to engage young people and adults in training, to improve their chances of employment in our future economy.
	The Government have high aspirations for every child in the country. By providing better education and training, they are challenging the underlying causes of poverty and helping children and young people to raise their own aspirations. It is essential that we reduce the educational attainment gap; it must be closed if social mobility is to be improved.
	I want briefly to take issue with my right hon. Friend the Member for Birkenhead (Mr. Field) on training. That is essential. We should not rule out "make work" schemes as part of welfare reform, but they should not replace any emphasis we place on training.
	The Government's work on child poverty has been leading the world. The child poverty Bill will enshrine in law historic commitments to eradicate child poverty in a generation. That is much welcomed. In passing, I note that the Conservatives have refused to make any real pledge on ending child poverty.
	Local initiatives and regeneration are crucial to tackling poverty and improving economic regeneration, so I welcome the Local Democracy, Economic Development and Construction Bill, and I hope that it ensures that local authorities can be much more active in economic development in their area.
	Finally, I want briefly to thank the Government for putting into the police and crime Bill measures to give local people a greater say over whether to have lap-dancing clubs in their area, and I hope to be called to say more about that on a future occasion.

Chris Grayling: This Queen's Speech has all the hallmarks of a Government who have been in power too long. It has all the characteristics of a Government who have run out of ideas, and we now have a set of Ministers who no longer have the ability to distinguish between the national interest, their party interest and their own personal interest. At a time of national crisis, we have a Government who are solely interested in securing their own re-election. Never has that been more apparent than during this year's debate on the Gracious Speech.
	What we have is a motley collection of Bills assembled not through some great vision of a different future for our country, but out of pure political expediency, such as the child poverty Bill. We all share the goal of eliminating child poverty and we will support the Bill, but we all know why the Government have chosen this moment to bring the measure forward. They hope that by setting in statute a child poverty target for 2020, we will all now forget that they have effectively abandoned their child poverty target for 2010. Well, I tell them today that we will not let them get away with that one.
	Then there is the welfare reform Bill. We all share the goal of radical reform for our welfare state, but we know why the Government have chosen this moment to bring forward that measure, as well. They hope that by rushing to copy Conservative welfare policies, they can deny us an opportunity to challenge them over their wasted decade: 11 years when the number of young people not in education or employment has risen, not fallen; when most of the millions of new jobs they are always reminding us about have gone to migrant workers, not to British people living on benefits; when countless billions of pounds have been thrown at the social problems we face and have made virtually no difference; and when in the good years, the Prime Minister blocked radical reform, when so much more could have been done. Well, we will not let them get away with that one, either. As the hon. Member for Glasgow, South (Mr. Harris) said on his now famous blog last week,
	"what a pity we weren't more radical in our first or second term."
	So instead, what do we get? We get a Gracious Speech that is little more than a diversion; bad news buried; unpopular plans dropped; good ideas pinched; and embarrassing failures masked by high-sounding announcements about the future; and a Gracious Speech with only a handful of measures, compared with those we have come to expect from this Government. This was not a plan for our futures—it was a public relations exercise, and a pretty poor one at that.
	Of course, there is another reason why the Government have so little to say at the moment. They have finally run out of money, and now they just do not know what to do. All the promises they made have come to nothing. Just look at what they said in the last two Gracious Speeches. In 2006, they promised to
	"maintain low inflation, sound public finances and high employment."—[ Official Report, House of Lords, 15 November 2006; Vol. 687, c. 1.]
	In 2007, they promised
	"policies to secure a stable and strong economy, with...sound public finances, and high levels of employment."—[ Official Report, House of Lords, 6 November 2007; Vol. 696, c. 3.]
	Two years later, we have the truth. The national debt is set to double within five years. Even the Treasury admits that unemployment is set to rise sharply. The pound has fallen to its lowest level against the euro, leaving millions struggling to afford their family holiday this summer, and now the Government are floundering in trying to find a response. One week, they are promising major new projects to try to ease the impact of economic downturn; the next—in the last few days—they are doing just the opposite, saying that major projects will now have to be delayed.
	One of the most breathtaking pieces of hypocrisy that we hear every week from this Government is when they claim that it is their opponents who are inconsistent. This is a Government who say one thing one week, another the next, and a third the week after. Then they stand in front of this House—the Prime Minister is the worst offender—and make claim after claim that would fail any polygraph test that has ever been invented. Most extraordinary of all, the Prime Minister stands up in front of this House and claims to have saved the world. Now he may say it was a slip of the tongue, but we know that he really believes it. Well, I have news for him. It is not just the German Finance Minister who thinks that that is a load of old kugeln. The list of independent international observers who think that Britain is very badly placed indeed to weather the current downturn is getting longer and longer.
	However, let us not go overseas for a straightforward view about the Government's policies. This, from one leading observer, was in  The Daily Telegraph on Saturday:
	"Worse still, few people believe that Gordon Brown's strategy to mitigate the impact of a mega-recession on jobs is likely to work. The Government has dangerously raised the stakes by borrowing an additional £20 billion to finance its VAT cuts. What is the sense of this policy when firms are rushing to cut prices by up to 50 per cent? A 2.5 point cut in VAT is simply spitting in the wind of the economic hurricane that is gaining strength."
	Members who were in the House earlier might recognise those words, because they were repeated—they are from the right hon. Member for Birkenhead (Mr. Field), a Labour Member of Parliament.
	If Labour Members are so confident about the state of our economy and about the viability of the measures unveiled in the pre-Budget report, I ask them to explain two things. Why is the pound falling sharply against the currencies of other countries? Why do they think it will be British people who will be paying more for their holidays this summer—if they can afford them, that is? Back in 1995 the Prime Minister certainly had his own view about a falling currency, when he said:
	"A weak currency is the sign of a weak economy, which is the sign of a weak government".
	Never was he more right about that than now, and the markets agree. Why do Labour Members think the international credit markets now view Britain as less credit-worthy than McDonald's? Could it perhaps be that the world outside now looks at the Prime Minister as being more Clark Kent than Flash Gordon? Our pensioners certainly view him that way. The most immediate victims of the sharp falls in sterling are British pensioners who have chosen to retire overseas. For them, a weak Government really have led to a weak pound, and they are all paying the price for this Government's failure in a very real way.
	Then we must consider the savers. Why have this Government so little to say about the fortunes of savers? As interest rates are slashed to try to respond to the economic failings of this Government, what have Ministers to say to those who are seeing their retirement incomes slashed as well? The answer is nothing, not even words of comfort. Indeed, when I appeared alongside the Minister for Employment and Welfare Reform on the BBC's "Politics Show" a couple of weeks ago, it was worse than that, because he was just plain dismissive of the challenge our savers face, and he is the No. 2 Minister in the Department that is supposed to be responsible for the welfare of older people. Ministers would not even take steps to suspend the annuities rule for those pensioners being forced to make long-term commitments in a turbulent market.
	This week, there has been yet another insult to the very large number of pensioners who lost money in Equitable Life. The ombudsman's ruling could not have been clearer; the Government have an obligation to respond. The Prime Minister promised a full response by Christmas. So what happened last week? The promised statement was kicked into the long grass of the new year. Ministers say that they will be doing something then. Well, I have a message for all those pensioners: I would not trust this Prime Minister further than I could throw him, and nor should they.
	I say that because what we have today in Britain is a Prime Minister who quite simply cannot be trusted. He leads a set of Ministers who deliberately misuse national statistics to win themselves favourable headlines, who systematically, week by week, in this House misrepresent the views of those who dare to oppose them, and who no longer originate ideas, but just copy the best from their opponents. This is a Government who have one single overriding objective: to hold on to the trappings of power, no matter the consequences for the future of this country, for those stranded on lengthening dole queues, for the people who have built up and nurtured businesses that create employment for millions and for those who have put aside money for retirement and now find themselves squeezed and squeezed.
	This Gracious speech does not offer a way forward to a better Britain. It contains no ideas about how to stem the tide of recession and begin to rebuild wealth and sustainable employment for all our futures, and no ideas about how to tackle the social breakdown affecting so many parts of our country. It no longer contains principles and philosophy; it just plagiarises the Government's opponents in the hope that they can be denied political advantage. It is about one thing, and one thing alone: power. Well, I say to Ministers tonight that Britain deserves better. When a Government no longer have a vision for the country they seek to lead, when a Government no longer have fresh ideas to bring to bear on the challenges we face and when a Government are more interested in holding on to office than in using it for the advantage of every citizen in this country, it is time for them to go.

James Purnell: This had been rather a good debate until the hon. Member for Epsom and Ewell (Chris Grayling) made his speech, but I will start by talking about the debate. There were good contributions from Members on both sides of the House. My hon. Friends the Members for Wakefield (Mary Creagh), for Coventry, South (Mr. Cunningham), for Glasgow, Central (Mr. Sarwar) and for City of Durham (Dr. Blackman-Woods) all spoke passionately about their constituencies and what they think the Government need to do.
	In particular, I pay tribute to the speech made by my right hon. Friend the Member for Stirling (Mrs. McGuire), who rightly spoke about the high expectations that we should have of disabled people, but also of the high support that we should give them because they have high expectations for themselves. They well remember the fantastic work that she did on their behalf.
	My hon. Friend the Member for Warwick and Leamington (Mr. Plaskitt) made a brilliant speech about bank regulation. I was lost for most of it, but he really seemed to know what he was talking about. My right hon. Friend the Member for Croydon, North (Malcolm Wicks) made an erudite speech in which he spoke passionately about welfare reform and the value he attaches to it.
	I congratulate my hon. Friend the Member for West Ham (Lyn Brown), who highlighted the problem for many of her constituents of being trapped in temporary accommodation. There is an important issue there that needs to be addressed, and the housing benefit proposals are the right way to do that. It is also worth saying that a number of Members on both sides of the House welcomed the increases in the access to work budget. I am glad that that has been recognised as being able to make a significant difference to people.
	The Gracious Speech will introduce measures to strengthen our economy, help people to save, involve communities, and improve health and education. Yes, it does—  [Interruption.] I paid tribute to a number of Members from the other side of the House.  [Interruption.] The Conservative Whip, the hon. Member for North-East Bedfordshire (Alistair Burt), who is in his place, welcomed the access to work—  [Interruption.] My right hon. Friend the Member for Birkenhead (Mr. Field) is not an Opposition Member; he is a Labour MP.  [Interruption.] Well, he made a good speech, and I can respond specifically to the point that he made.
	My right hon. Friend said that we should be doing more in terms of community work for young people—and we absolutely agree. That is why we will be fast-tracking people who have been out of education or training on to the flexible new deal where there is indeed a requirement for them to be doing full-time work in return for their benefits, and we will be taking it further. That is an important point, and one on which we agree.
	It is interesting that the hon. Member for Epsom and Ewell barely mentioned welfare reform or child poverty. I was grateful for some small mentions, although I was slightly worried when I read his amendment, which does not mention them at all. Welfare reform used to be his favourite subject, but he has gone mysteriously silent on it. Why has he done that? Exactly because he starts from the politics and ends up with the wrong policy.
	That is Conservative Front Benchers' problem on so many things. It is their problem on the economy. They start from the politics and consistently end up with the wrong policy. When they thought that the Northern Rock nationalisation would be unpopular they opposed it, because they started with the politics and ended up with the wrong policy.
	When Conservative Front Benchers thought that it would be statesmanlike to support the Government on bank recapitalisation, they decided to support the Government. But again, they worried that they were in the wrong place on the politics. A consensus, even one so obviously in the national interest, does not allow the Opposition to play politics, so they moved again and decided to announce that they would cut public spending.
	Because the Opposition started from the politics, they ended up with only one clear policy: to do nothing to help, and simply to let the recession take its course. That is exactly the policy that they adopted in the 1980s and the 1990s, when they said that unemployment was a price worth paying. That is exactly what they believe today.
	We disagree. We disagree with the idea that people should be abandoned. We disagree, above all else, with the idea that nothing can be done. If we can support the economy, the recession can be shallower and shorter, which means less costly to the Exchequer—and most of all, less costly for individuals, families and communities around our country. We understand that good policy involves both social justice and good economics. The Opposition understand neither.
	The shadow Chancellor was at his most thoughtful today. That is not saying much, for him, but he was trying to make an argument. However, his argument had one Achilles heel, which became clear when the Chief Secretary to the Treasury asked him how he would fund the extra spending for pensioners and on children. He had no answer to that, because he has boxed himself in. He says that he does not believe in the extra borrowing, but that means that he would not be able to support the extra spending on pensioners, as he would not be able to afford it. He can stand up and intervene now, if he wants to, and tell us how he would fund the extra £60 a week that we are giving pensioners in January. How would he fund the extra money that we have put into pension credit—the biggest uprating ever? He is welcome to intervene, but he would have no money for that, either. How would he fund the extra £3 billion in public spending on infrastructure? He can stand up and say how he would fund that, but he has no way of saying—

Stewart Hosie: rose—

James Purnell: I do not think that the shadow Chancellor needs help from the Scottish National party—things are not quite that bad for him yet. He has no way of funding any of those things, because he has boxed himself in by saying that he wants to cut public spending in the future, but not to do the borrowing now. That means that the Conservatives would not be able to afford the extra help that we have said that we will put in place and—worse than that—in the middle of a recession, far from helping people more, they would be cutting spending, just as they did in the '80s. They would cut spending and make the recession worse.

Stewart Hosie: The Secretary of State talks about the £3 billion. Will he confirm that that is not new money, but re-profiled money brought forward from future spending years? It is nothing to do with the borrowing: money is being brought forward from future years, where there will be a gap.

James Purnell: Exactly. They have not done that in Scotland, and they could be doing it. I hope that the hon. Gentleman will be argue for that in Scotland, so that we have the same support for people across the United Kingdom as we have in England. He should argue for that with his Government in Scotland.
	We believe that the Opposition have got themselves into a position on economics where they would do nothing to help people. That would mean that the recession would be longer. If in the 1990s they had taken action similar to what we are doing now, they would have been able to reduce the effect of the recession on the UK. We believe that if a timely fiscal stimulus with a similar impact on GDP had been applied at the beginning of the recession in the 1990s, some 300,000 jobs might not have been lost. Some 300,000 people who lost their jobs would not have done so, reducing the costs to them, to our communities and to the Exchequer. The Opposition simply do not understand that.
	The Opposition do not want to admit that they would do nothing. They do not want to admit what they really believe, which is that nothing can be done. They want to erect a smokescreen of measures instead. They want to pretend that those measures are far-reaching but they do not want to say that they would cost any more. They want to have a national loan guarantee scheme without saying that it would cost any more money. They want to cut national insurance for employers, but they pretend that that would be entirely and immediately self-funding. They want to put £3 billion extra on the working tax credit, without saying where any of the money would come from. The smokescreen distracts from the fact that the Opposition have no idea what they would do, and that they would do nothing to help people through the recession.
	In contrast to the Tory smokescreen, we are offering real help. To rescue the banks, we recapitalised them. To help SMEs, we announced billions to support their credit and their exports. To help companies with their tax bills, we have said that we will defer payments until the company recovers. As we have also said how we would pay for those changes, interest rates have been able to fall, unlike what happened in the '90s recession, when interest rates had to stay artificially high because of the economic policy of the Government at the time.
	We are not returning to the policy of the 1970s, but are following the advice of the Institute of Directors, the CBI and the Governor of the Bank of England, who are hardly Scargillites. Indeed, the Governor of the Bank of England said:
	"In these extraordinary circumstances it would be perfectly reasonable to see some use of fiscal stimulus",
	provided that it could be repaid and that there was a clear plan for it. That is exactly what we have put in place.
	The need for extraordinary action has recognised by the US, France, Sweden, Italy, Spain, China, Austria— [ Interruption. ] The shadow Chancellor had a bit of fun with the subject of Germany earlier in the debate, but the Germans are doing exactly the same thing. They are increasing their spending. They are putting 1 per cent. into the economy, despite the fact that their debt is higher than ours. It is because we have pegged down the debt from the high levels that we inherited from the previous Government that we can respond through interest rates, monetary policy and fiscal policy, working together to do exactly the right thing for this country.
	The Opposition want to pretend that they can take more action, but they do not want to say how they will fund it. The way they used to get themselves out of that bind was to talk about welfare reform. The Leader of the Opposition did exactly that last week when he said that through welfare reform their plans would add up, and they would be able to do more without spending more. He said that, magically, they would find greater savings from welfare reform than we could.
	To make such a claim, the Opposition have to say that they would go further than us, but as the hon. Member for Epsom and Ewell recognised last week, we are implementing all the recommendations of the Freud report— [ Interruption. ] He says we are just piloting it, but we are doing exactly what he said—so much so that he wrote an article last week recommending and approving exactly what we were doing. He wants to magic up savings while pretending that he would do more. He recognises that we are implementing the Freud report, but his problem is that in the White Paper we make further proposals. We are implementing the Gregg report.
	The hon. Gentleman may want to intervene to clarify his party's position, but I think he is preparing to oppose some of those proposals. I think he is trying to say that he does not want to implement those reforms. The problem that creates for him is that he would not be able to say that he will have extra savings, because he would be doing less than us. That is typical of the hon. Gentleman—he wants to have his cake and eat it. He wants to say that he would do more but spend less, yet he has no ability to do so because he is not prepared to back the reforms that we are prepared to make.
	The hon. Gentleman has a chance to rectify his reputation through those welfare reforms—to correct people's view that he is a one-trick pony and only knows how to attack. If he genuinely believes that welfare reform is the right thing for the UK, he should say so. He should say that he will back our reforms, and change the habit of a lifetime and avoid the temptation to play politics. If he wants to rectify his reputation, he should stand up straight away and say that what we are doing on welfare reform is right and that he will back it.
	The Government have taken 900,000 pensioners out of poverty. We did fix the roof while the sun was shining. We put in place measures to protect people's pensions through the Pension Protection Fund and the pension regulator. The changes we have made give people confidence that their pensions are protected. We are reforming pensioners' benefits through personal accounts, bringing in help for people so that they can plan with confidence for the future.
	A third of a million more lone parents are in work than in 1997. The number of children in absolute poverty has halved, and 600,000 fewer children are in relative poverty. All those measures have been possible only because of the changes we made. The Opposition refused to back the changes that mean we will go further. They propose to do nothing to help people through the recession, because they start from the politics, not the policy. They have nothing to offer people to help them through the recession. All they would do is go back to the mistakes of the '80s and '90s, abandoning people to the fate they suffered under the Tory party. That is not a mistake that we shall repeat, and I commend the Gracious Speech to the House.

Question put, That the amendment be made.
	 The House divided: Ayes 255, Noes 306.

Question accordingly negatived.
	 Amendment proposed: at the end of the Question to add:
	"but humbly regret that the Gracious Speech fails to provide proposals to alleviate the hardship facing hardworking British families by reducing energy bills, boosting growth through investment in social housing, transport and green energy programmes, making banks prioritise lending to British businesses, fundamentally altering the structure of British taxes to make them fairer, closing tax loopholes on the very rich and making significant cuts in income tax for those on ordinary and low incomes." —(Mr. Burstow.)
	 Question put forthwith (Standing Order No. 33), That the amendment be made.
	 The House divided: Ayes 66, Noes 304.

Question accordingly negatived.
	 Main Question put.
	 The House divided: Ayes 302, Noes 251.

Question accordingly agreed to.
	 Resolved,
	That an humble Address be presented to Her Majesty, as follows:
	Most Gracious Sovereign,
	We, Your Majesty's most dutiful and loyal subjects, the Commons of the United Kingdom of Great Britain and Northern Ireland in Parliament assembled, beg leave to offer our humble thanks to Your Majesty for the Gracious Speech which Your Majesty has addressed to both Houses of Parliament.
	 Address to be presented to Her Majesty by Members of the House who are Privy Counsellors or Members of Her Majesty's Household.

Business without Debate

SITTINGS OF THE HOUSE

Motion made,
	That, at the sitting on Thursday 18 December, the Speaker shall not adjourn the House until he has notified the Royal Assent to Acts agreed upon by both Houses.— ( Ian Lucas. )

Hon. Members: Object.

PETITIONS

Criminal Sentencing

Lindsay Roy: It is with a heavy heart that I present this petition on behalf of my constituent, Mrs. McPhee, and more than 7,000 signatories. When a Member of Parliament receives such a substantial petition, which was signed over the course of a few days, it must be readily apparent that the people of the constituency feel let down, disillusioned and angry. As the Member of Parliament for Glenrothes, I endorse the petition in full, and trust that the Secretary of State for Justice will give it his fullest consideration.
	The petition states:
	The Petition of Mrs. Elizabeth McPhee and others,
	Declares that the sentence of six years imprisonment for the two men convicted of the murder of Mr. Ryan McPhee, aged 17, on 4th July 2007 is far too lenient. The reality is that these people will serve about three years in prison.
	The Petitioners therefore request that the House of Commons urges the Secretary of State for Justice to instruct a review of sentencing guidelines in the light of the sentence given to the men convicted of the murder of Ryan McPhee.
	And the Petitioners remain, etc.
	[P000134]

Fire and Rescue Services (York)

Hugh Bayley: On Wednesday, I shall meet the Under-Secretary of State for Communities and Local Government, my hon. Friend the Member for Tooting (Mr. Khan), together with a delegation of Members of Parliament from the areas of the 10 fire and rescue authorities in England that have received a provisional grant increase of only 0.5 per cent. for next year and the year after. Tonight, I present a petition signed by hundreds of people from my constituency urging the Government to think again.
	The petition states:
	To the House of Commons.
	The Petition of Kevin Booth, Editor of "The Press" York and the people of York,
	Declares that the Petitioners note with concern the proposed increase in Government funding for the North Yorkshire Fire and Rescue Service of only 0.5 per cent. in 2009-10 and again in 2010-11.
	The Petitioners therefore request that the House of Commons urges the Government to provide a fairer grant settlement to ensure firefighters can continue to respond to fires and other emergencies, and also deliver a comprehensive fire prevention service across York and North Yorkshire.
	And the Petitioners remain, etc.
	[P000297]

GROCERY SECTOR

Motion made, and Question proposed, That this House do now adjourn. —(Ian Lucas.)

Andrew George: I am pleased to have secured this debate on the regulation of the grocery sector, and that the Minister is here to respond to it, as he knows my well-established interest in the subject as a result of a parliamentary question that I asked him on 23 October—column 443—and of a Westminster Hall debate on 13 May this year, in which we had the opportunity to debate the role of supermarkets in the grocery supply sector.
	I shall first paint a picture of the subject's background. My hon. Friend the Member for South-East Cornwall (Mr. Breed) deserves an honourable mention at this stage, because he was the author of a report, "Checking out the supermarkets", which was published in 1998, and which was a precursor to a request in April 1999 by the then director general of fair trading to refer concerns about the practices of supermarkets to the Competition Commission. The commission produced a report in October 2000, entitled "Supermarkets: A report on the supply of groceries from multiple stores in the United Kingdom". In September 2003, the Competition Commission produced a report on the Safeway merger. Following the commission's original report in 2000, which set up the supermarket code of practice, the 2004 report from the Office of Fair Trading was the first attempt to review whether the code of practice was effective. Because of the inconclusiveness of the first report, a second was produced in March 2005. As a result, in 2006, the OFT referred supermarkets to the Competition Commission again.
	In July 2006, I was privileged to be able to call together a wide range of non-governmental organisations and interest groups including Friends of the Earth, the Association of Convenience Stores, the British Brands Group, the British Independent Fruit Growers Association, ActionAid, Traidcraft, the National Farmers Union of England and Wales, the National Farmers Union of Scotland, Banana Link and Breaking the Armlock in what we called a cross-cutting group, because it was covering a number of subjects that were relevant to the Competition Commission inquiry. We submitted a proposal, which I had supported for a number of years, for not so much an independent food trade regulator as an adjudicator.
	On 13 March this year, following the provisional findings of the Competition Commission's inquiry, I went to give further evidence to the commission along with Michael Hutchings, a lawyer supporting the cross-cutting group, and Robin Tapper, representing the NFU. I was pleased that on 30 April 2008, the commission's final report on the United Kingdom grocery market included proposals for the strengthening of what was then known as the supermarket code of practice to become a reinforceable grocery sector code of practice and for the establishment of a supermarket ombudsman, for a number of reasons which I shall explain in a moment. The Government responded on 29 July; the Minister may well comment on that.
	We need to be clear about the Competition Commission's powers under the Enterprise Act 2002, as proposed by Government and agreed by Parliament. Section 134(1) states that the Competition Commission shall decide whether any feature of the market restricts or distorts competition, which is described as
	"an adverse effect on competition".
	Section 134(4) states that if the Competition Commission decides that there is an adverse effect on competition., it must also decide whether action should be taken by it to remedy the adverse effect or whether action should be taken by others, and, in either event, must decide what action should be taken. Section 134(6) states that the commission must try to
	"achieve as comprehensive a solution as is reasonable and practicable".
	Section 134(8) states that when deciding on these remedies the commission may have regard to likely customer benefits in the form of
	"lower prices, higher quality or greater choice of goods or services".
	According to paragraph 3 of the Competition Commission's final report, published on 30 April—this is a crucial quotation—
	"the transfer of excessive risk and unexpected costs by grocery retailers to their suppliers through various supply chain practices if unchecked will have an adverse effect on investment and innovation in the supply chain, and ultimately on consumers".
	It proposes the two remedies that I mentioned earlier—a change in the supermarket code of practice and the establishment of an ombudsman. Paragraph 5 states:
	"If we cannot secure suitable undertakings from these grocery retailers, we recommend that Government takes the necessary steps to facilitate the establishment of the Ombudsman."
	The report devoted 90 of its 270 pages to the description of the remedies. It therefore cannot be said either that the remedies were not a substantial element of the report or that the commission treated the issue lightly.
	Obviously, we were keen to hear what the Government had to say. On 29 July, they said in a press release:
	"If it cannot get agreement the Government will consider establishing the ombudsman itself. The Government would make an assessment based primarily on what would be in consumers' best interests".

David Drew: I congratulate the hon. Gentleman on yet again raising this topic, in which we share an interest. The simple fact is that, according to even the Sainsbury's briefing for this debate, the supermarkets have no intention of voluntarily agreeing to an ombudsman. The Government must, therefore, now make up their mind. If the supermarkets will not accept a voluntary agreement on an ombudsman, the Government must legislate.

Andrew George: I am grateful to the hon. Gentleman for that—or perhaps I should call him my hon. Friend, as on this issue and many others he has been an assiduous and strong campaigner. It would be helpful if the Government were to give a strong steer on this issue, either this evening or soon. Otherwise, there will be a long and painful process of attrition. It will be most painful for the suppliers and the primary producers in this country and worldwide if we do not achieve the desired result as soon as possible.
	On behalf of the cross-cutting group, we commissioned Professor Roger Clarke of the Cardiff business school to look at the potential impact of an ombudsman on the consumer's best interests. His paper will be published in the new year, but I can quote from some of the findings that I know it will contain when it is made public. Professor Clarke says that an ombudsman
	"will reduce the problem in supplier/retailer relations whereby the abuse of buyer power in the short run has negative effects in the longer run tending to raise prices to consumers."
	Secondly, it
	"will reduce risks to suppliers enabling them to invest for the longer term and provide benefits from new innovation such as better quality products and more product variety."
	Thirdly:
	"The costs of this policy as envisaged by the CC"—
	the Competition Commission—
	"are likely to be very small while failure to introduce an Ombudsman is likely to lead to a significant weakening of the policy."
	On such a failure, he adds:
	"In turn, this is likely to mean further investigations will be needed in the future. The introduction of an Ombudsman is likely to provide significant consumer benefits and be, arguably, in the interests of the supermarkets themselves."
	I shall come to that point later.
	The evidence provided by the Sainsbury group is not necessarily fair from the point of view of the supermarkets either. Although the cross-cutting group has some quibbles about the CC's draft proposals, the code should apply to all transformative stages through the supply chain, not to the last supplier to the supermarkets. There are various issues and reasons to do with that, but I will not go into them now. There is also a weakening of the supply code as drafted, a number of elements of which involve what we describe as the "unless" clauses—the conditional reasons why the code would not apply. We think that that results in a weakening of the supply code. There is also a need for a greater emphasis on proactivity within the role of the ombudsman, because it was clearly shown by the previous inquiries that suppliers do not complain because they fear the consequences of complaining about their primary customer. The most significant consequence is that they lose that customer. There is great concern about that climate of fear, as it was described.
	There are areas of dispute relating to matters of cost and arguments about red tape. The Tesco director of corporate and legal affairs, Lucy Neville-Rolfe, said in April 2008:
	"Tesco considers that introducing a new ombudsman could be bureaucratic and an unnecessary cog in a supply chain which has worked well for consumers. More red tape is likely to stifle innovation and investment and reduce the ability of retailers and suppliers to work together flexibly to deliver the best deals for customers".
	That is not what we would hear if we spoke to suppliers—certainly if we spoke to them quietly and without the climate of fear. If the supermarkets are so concerned, they must explain why they have created red tape for primary producers through the creation both of unofficial rules and regulations for their assured produce and of other mechanisms that constrain the ability of suppliers to innovate. Asda's chief executive, Andy Bond, said in April 2008:
	"The Competition Commission's proposals on the new code and an ombudsman could cost the industry hundreds of millions".
	The worst estimate of the cost of a code is £5 million to £6 million, even if all the costs to the industry—and it would be a cost on industry, not the taxpayer—were automatically transferred to customers, which would work out at about 1.25p per customer. The proposal fails to recognise the benefits for the supermarkets.

Roger Williams: I commend my hon. Friend on the work that he has done on the subject. He has clearly set out the resistance from supermarkets to the setting up of the ombudsman, but he will recognise, too, that there is huge support for the measure from suppliers, and from the National Farmers Union, the Farmers Union of Wales and the Country Land and Business Association. That is in great contrast to the lack of support from Her Majesty's official Opposition, who appear to be determined to connive with the Government in preventing the setting up of the ombudsman.

Andrew George: I will side-step the party political arguments, and simply concentrate on the issue emphasised by my hon. Friend. There is strong support for the measure, not just among suppliers, and it is important that the Government recognise that in these straitened times—the recession and the credit crunch—if we are to create the stability in the economy that the Government sincerely want to achieve, one of the best ways of doing so is to respond to the large number of small and medium-sized enterprises in the grocery supply chain that need reassurance. One of the best ways of giving them that reassurance, and providing the stability that the British economy needs, is not to side with the supermarkets but to ensure that there is fair play for people throughout the supply chain.
	The Government should recognise—and I am sure that they will do so in time—that there is growing interest among consumers, consumer-based organisations and other non-governmental organisations in matters relating to sourcing and traceability in the supply chain for food and other products in the retail and catering sectors. I was brought up on a three-acre farm, where food never travelled more than 10 miles to reach its final destination. The pittosporum went up the road to Covent Garden at Christmas time, but the market has changed. I accept that it is a new and very different world from the one in which I was brought up, but now that people are less aware of the source of their food, it is important that transparency and reassurance are available in the market.
	If the supermarkets have nothing to hide, they have nothing to fear from this rather simple and straightforward regulation. In fact, they have a great opportunity as a result of the existence of an independent arbiter on the nature of the relationships between themselves and their suppliers. If that independent arbiter can give them a badge of approval, that will be a good thing. The measure has the support of the NFU and the CLA. Given that the Government passed the Enterprise Act 2002 in the first place, all that the Competition Commission is doing on this occasion is following the letter of the law that the Government clearly support.

Gareth Thomas: I congratulate the hon. Member for St. Ives (Andrew George) on securing parliamentary time for this important debate. I welcome the opportunity to debate the issues with him once again. As he rightly says, we have exchanged ideas and positions on this issue a number of times, and I suspect that, given the passions in this debate, there will doubtless be a number of further exchanges. I note, too, the considerable interest with which my hon. Friend the Member for Stroud (Mr. Drew) has pursued these issues, as the hon. Member for St. Ives mentioned. I recognise the agricultural passions—if I may put it that way—that the hon. Member for Brecon and Radnorshire (Mr. Williams) brings to this debate and the interest of the hon. Member for Ceredigion (Mark Williams) in this subject.
	I recognise that in initiating this Adjournment debate the hon. Member for St. Ives is bringing to the Floor of the House many of the concerns of the so-called cross-cutting group—a UK-wide group with cross-party parliamentary membership that has made series of strong representations on this issue, including giving evidence to the Competition Commission's inquiry into the power of supermarkets in the grocery sector.
	I recognise that the group has commissioned its own analysis of the consumer welfare benefits of an independent ombudsman. The hon. Gentleman may well be aware that my officials met the report's author, and Traidcraft, the National Farmers Union and the British Brands Group as recently as last week. We are studying the report that the group commissioned with considerable interest.
	Perhaps the hon. Gentleman will allow me to set out some of the context for the debate and the inquiry. Supermarkets are crucial to the economy. Some £110.4 billion-worth of grocery sales are made through nearly 100,000 grocery stores in the UK. The eight largest grocery retailers account for about 85 per cent. of total grocery sales, with the largest four accounting for about 65 per cent. of grocery sales. One thing is for sure: a supermarket will not remain in business in the grocery sector if it has no customers, and those customers are, for the most part, although not exclusively, local customers. The question for the Government, at least in the regulation of supermarkets, is surely whether we have got the balance right. If we have not, we must work out what we should do about it. Such questions are part of the reason we established the independent competition authorities in the first place and part of the motivation for the Office of Fair Trading and the Competition Commission mounting the various investigations that the hon. Gentleman described.
	It is also worth noting that in the past two or three years British supermarkets have made enormous strides in improving their ethical sourcing, improving their environmental performance, reducing their wastage, encouraging recycling, stocking the greener goods that customers now demand, stocking ranges of healthier food and more locally produced products, and making contributions in a wide variety of ways. Indeed, British supermarkets, led by the Co-op, have also led the way in promoting and championing Fairtrade goods, and I hope that they will do more in this area. In particular, I hope that they will continue to work with the Department for International Development to see how they can source more of their products from developing countries.

Andrew George: I fully understand—this is one of the points I was making—that there are good public relations reasons why the supermarkets should get in front of this debate, rather than be dragged along behind it, but in what circumstances would the Government not accept the considered recommendations and findings of a competition body that they have set up to consider these issues deeply and make recommendations that it clearly wants to implement?

Gareth Thomas: If the hon. Gentleman will forgive me, I shall come to exactly that question in due course. Perhaps I may end my comments on the context in which we are having the debate by saying that as long as what the supermarkets are asking is fair, there should be nothing wrong with that. If it is not fair, that is perhaps what the strengthened supermarkets code should be for. I will come to that in more detail.
	As the hon. Gentleman said, the Competition Commission began its work in May 2006, delivering its final report and recommendations on 30 April this year. As he knows, the Government responded on 29 July. The Competition Commission produced an extremely thorough report that raised a series of complex and important issues for the grocery market. We recognise in particular the importance of the grocery sector to consumers, as well as to the wider economy. That is why we put considerable time and effort into looking at the report in some detail, giving full consideration to the findings and the recommendations, especially those for the Government.
	The hon. Gentleman will know that the Competition Commission received hundreds of submissions from third parties and held some 80 hearings as a result of the inquiry. I hope he will acknowledge that, in general, the Competition Commission found that the groceries market delivers a good deal for consumers.
	I acknowledge that the Competition Commission identified two principal areas of concern. The first is that some grocery retailers have strong positions in several local markets, which could lead to a poorer retail offer for consumers in those areas. The second, which he touched on, is concerns over the transfer of excessive risk and unexpected costs being passed on to grocery retailers' suppliers through various practices that the Competition Commission believes will have an adverse effect on investment and innovation unless they are addressed.
	Grocery buyer power is of benefit to consumers, as part of the lower supplier prices arising from that buyer power will be passed on to consumers. While the Competition Commission did not find the financial viability of food and drink manufacturers to be under threat, the transfer of excessive risks and unexpected costs could, in its view, lessen the incentive to invest and innovate.

David Drew: With that in mind, is my hon. Friend somewhat surprised by paragraph 3.1 of Sainsbury's submission to the debate? It states categorically:
	"Sainsbury's was not provided with any specific evidence to support the conclusion of an adverse effect in relation to suppliers with whom we trade."
	Given the nature of what the Competition Commission argued, is it not somewhat strange that a supermarket could make that point?

Gareth Thomas: It is for my hon. Friend, and indeed others who have received the document that he describes, to make their own judgments. I will come on to the fact that a dialogue is under way between the Competition Commission and those who have submitted evidence. We need to allow that dialogue to continue.
	Let me come to the remedies suggested by the Competition Commission. On the supply chain issues that it specifically identified, it recommended the creation of the grocery supply chain code of practice, building on the existing supermarkets code of practice. That new code will extend the number of supermarkets from four to 11, covering grocery retailers with groceries turnover in excess of £1 billion.
	An overarching fair-dealing provision is included and certain practices such as making retrospective adjustments to terms and conditions of supply will be prohibited. Record keeping will be improved and in-house code compliance officers will be introduced. In addition, retailers will also be obliged automatically to provide their standard terms and conditions to suppliers. As the hon. Member for St. Ives might know, the Competition Commission already has powers to implement that remedy.
	The hon. Gentleman directed the bulk of his comments to the fact that the Competition Commission is also seeking undertakings from grocery retailers to establish an ombudsman to monitor and enforce compliance with the new grocery code. The Competition Commission hopes to achieve that through grocery retailers' agreeing voluntary undertakings.
	The hon. Gentleman asked about current progress and my hon. Friend the Member for Stroud effectively repeated that question and the concern underlying it. I should make it clear that the creation of an ombudsman remains with the Competition Commission for the foreseeable future. Under section 159 of the Enterprise Act 2002, it is seeking undertakings from the grocery retailers covered by the new groceries supply code of practice to establish that ombudsman to monitor and enforce compliance with the code. No formal recommendation has been made to Government.
	Implementing the remedies is progressing, albeit at a slightly slower pace than that currently posted on the Competition Commission's website owing to the sheer number of parties that want to make their views known and that want to make representations.

Roger Williams: The Minister is characteristically helpful and open in his response, but was one of the recommendations in the report that the Department for Business, Enterprise and Regulatory Reform consult the Department for Environment, Food and Rural Affairs on the effect that the recommendations would have on primary producers? If so, has DBERR made contact with DEFRA on those issues?

Gareth Thomas: When the Government published their response to the initial Competition Commission report on 29 July, that response came from the whole of Government. All the interested Departments, not just my Department and DEFRA, were consulted in the preparation of the report. I shall come on to the question of future consultation across Government.

Andrew George: I am aware that time is against us, but before the Minister moves on will he reassure the House that the Government will in no way be influenced by the appointment of Sir Terry Leahy, the chief executive of Tesco, to the Prime Minister's Business Council for Britain? I understand that the council has been appointed to advise the Government on business matters in relation to the future of the economy of Britain.

Gareth Thomas: We have a high opinion of Sir Terry Leahy, which is why he was appointed, but we also have a high opinion of organisations such as Traidcraft and the National Farmers Union, who have slightly different opinions from Tesco on the issues that we are involved in. We are interested in everybody's opinions, but it is still the Competition Commission's responsibility to take forward the discussions with a large number of stakeholders, including non-governmental organisations and major multiple and minor grocery retailers. The commission hopes to conclude the informal consultation before Christmas. I understand that the hon. Member for St. Ives is among those who have met the Competition Commission to give their—
	 House adjourned without Question put (Standing Order No. 9(7)).